Managing personal financing is a task for people. On top of that, household debt can give a headache. Did you know that in the first quarter of 2020, the household debt in the U.S. was a record $14.20 trillion? That is a lot of debt. And managing this debt can be difficult. The solution to having less household debt is to reduce your expenses. Most people believe that cutting down the expenses is not easy. But it is easy if you know the right way to do it. Today, we will share some tips on how you can cut down expenses and be debt-free.
Track Your Spending Habits
The first and foremost step towards cutting down your expenses is to know your expenses. Start tracking down where you are spending your money. You can track this monthly or every 60 days. You will be surprised by your spending. If you are old school, you can track it by writing them down. Or you are tech-savvy then there are multiple options for you.
If in any case you pay with a debit or credit card, check your statements for the spending. One easy way is to get the print of your bank statements, then highlight the expenses in different colors. This way you will know the necessary spendings which cannot be cut down. Also, the ones which you can manage. Most importantly, the ones which are unnecessary and need to cut down.
Some financial companies have a graph or pie chart on debit card accounts with spending categories. This method shows you where your money went. If you are a person who uses cash over cards, then collect the receipts whenever you buy something.
Set a Budget for yourself
Budgeting is an important step towards cutting down the expenses. All you have to do is sit down and figure it out according to your needs. You can separate your budget into “needs,” “wants,” and “goals.” You will be clear about things this way. Also, you can easily avoid the problem of “overcomplicating” the budget. Overcomplicating the budget is a common mistake that people make. Break down the list, and you will never face this problem. Also, your priority should be clearing your debt. Therefore, work accordingly.
Lower your Housing expense
One of the biggest expenses can easily be housing expenses. Therefore, try and lower your housing expense. According to the statistics, people with income below $50,000 a year spend an average of 36.6% or more of their income on housing. Financial experts suggest using about 30% of your income on housing. If you are looking for a mortgage for housing, the lenders will reject your application. The lenders accept the applications of people who spend about 28% of their pre-tax income on housing.
If you own a house, then you can decrease your house expenses by renting some part of your house for the short term. You can also use refinancing as an option. It will help you get a lower interest rate and lower your monthly mortgage payment. For renters, the easiest way to cut down expenses is a roommate. With a roommate, you can manage the finances, and both of you will get benefits. Also, you can do some of the repairs yourself for a break in the rent. But only repair those things which you can. Otherwise, you will be in more loss than profit. You can also consider moving to a cheaper apartment or a cheaper area for expense cutting.
Keep Necessary Subscriptions
If you are thinking about cutting your expenses, then you must rethink the subscriptions you have taken. There are subscriptions like cable TV or streaming services, internet, cell phones, and publications that take out money from your account every month. You have to do some deep thinking in this case and ask yourself questions like, how often are you using these, do you really need them, and can you live without them? Once you sort this and unsubscribe to the unnecessary, you will be saving a lot more money.
The bottom line
We have listed some of the ways how you can very easily cut down your expenses. These are simple tips. And if you follow these, you will undoubtedly save money. Now it is your decision whether you want to save money and get out of debt or not.