4 Min Read
A significant aspect of figuring out your personal finances, and financial literacy, is finding the best way to utilize your money. For millennials, it is especially tough to figure out how to organize your finances and save while on a small budget. The key lies in cutting back on unnecessary spending.
It may take some work initially, but it will ease your financial stress and help you save more and pay off your debts quicker. To successfully cut back on unnecessary expenses, it is essential to understand everything about your monthly transactions.
What Are Monthly Expenses?
Monthly expenses are a cumulative total of the daily living expenses you have to incur to maintain good health and quality of life. Some of the necessary monthly expenses include clothing, food, healthcare, housing, and transportation.
Although there may be other expenses that recur monthly, they might not necessarily be living expenses. For instance, your Netflix subscription or gym membership renewal are not classified as living expenses.
The easiest and most effective way of ensuring that you live within your means is by creating a monthly expenses list.
How to Make a Monthly Expenses List
When creating your monthly expenses list, you need to note down all expected expenses for the month. Such expenses may include:
• Rent or mortgage payments and utilities
• Groceries and eating out
• Transport and travel costs
• Healthcare or medical expenses
• Debt payments
• Charitable donations
Each expense on this list can have one or more subcategories. However granular you’d like to get with your financial data is totally up to you.
Use your credit card statements, receipts, and bank statements from the last couple of months to identify the areas you spend your money.
How to Calculate Monthly Expenses
Before calculating your total monthly expenses, you will need to divide them into:
• Fixed expenses: These are the costs you can undoubtedly forecast as they largely remain the same. Fixed expenses are likely to take up a considerable percentage of the budget. They include mortgage payments or rent, insurance premiums, car loan payments, bank fees, and debt payments if you are on a debt repayment plan.
• Variable expenses: As the name suggests, variable costs vary from month to month. They are a representation of your daily spending habits. Although most variable expenses are optional, some could be necessities. For instance, vehicle repair and maintenance is a variable expense, but it is necessary. Likewise, the money you spend on groceries and utilities may vary from month to month, but you need them.
Assign a value to every category, beginning with the fixed expenses and moving on to the variable expenses. For the latter, you can get an average by looking at the amounts you have spent on each over the last three or four months.
You can use an online monthly expense calculator to generate your monthly budget. This calculator will help you get a clear picture of the money that gets into and out of your account.
How to Identify and Stop Spending Money on Unnecessary Things
• How often do you use the item?
• Is it really necessary?
• Can you live without it?
Some of the ways through which you can minimize unnecessary expenses and discover easy ways to save money include:
• Make a grocery list
You will need to come up with a grocery list a few days before going to the store. Prioritize your monthly purchases and avoid spending on things that you do not really need. Avoid justifying an expense just because an item that is not on your list is on sale. Having a list helps you resist the urge to buy something just because you think you might need it.
• Check your subscriptions
Often, once you subscribe to something such as a publication, streaming service, internet, and so on, you no longer think about it. However, you still pay for it every month. No matter how small a subscription fee is, several of them can quickly add up to hundreds of dollars. Cancel any unnecessary subscriptions. Unsubscribe to any advertisements or e-mail newsletters that might lure you into re-subscribing. For example, if you’ve exhausted your Netflix list, cancel your subscription until a show you’ve been waiting for is added.
• Avoid online impulse spending
Online shopping is quite convenient, but you may end up with unnecessary purchases unless you are disciplined. You can ensure you do not have money to buy things online by saving all the money left after catering to your monthly expenses. Alternatively, use the money to pay off a debt. Or check out the 30-day savings method and 50-30-20 rule to cut down on overspending.
The Monorail Wishlist app is also an easy way to limit your spending on unnecessary purchases.
Atop the tips discussed above on how best to cut down on unnecessary spending, you also need to practice self-control and moderation (which can be quite hard, no doubt and some may better from diving deeper into the financial stress and mental health connection.) But there are apps out there that can help you on your financial journey like Monorail.
See how saving with Monorail could be your first step to making your own budget for monthly expenses.
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