Simplifying your life can also help you improve your decision-making—and that goes for your financial life, as well.
Before developing a budget, you can declutter your finances by making sure you’re not paying for things you don’t need or want. You can also consolidate your accounts and declutter the ones you do keep, which can help you avoid overspending.
Learn more strategies for streamlining your finances to help you develop an effective budget, have greater control over your finances, and save money.
- Simplifying your budget can begin with cutting unnecessary expenses, such as canceling subscriptions that you don’t use.
- Review your bank statements to identify unnecessary expenses and determine whether each expense should be reduced, renegotiated, or canceled.
- Closing accounts and consolidating certain types of financial services can help streamline your finances, making it faster and easier to manage your money.
Review Your Expenses and Close Accounts
One of the first steps in simplifying your budget is reviewing your bank statements and identifying all your expenses. Categorize them into “unnecessary” expenses (like unused subscriptions) and “necessary” expenses (like utilities) so you can make decisions about where to cut back.
Take advantage of any features in your financial accounts that can help you scale back by, for example, providing transaction categories.
Gather each account statement or online transaction log for your various credit cards, checking accounts, and any other accounts from which you pay for expenses. If you pay for some things in cash, gathering your paper receipts can also help identify expenses you could cut.
Scan for Unused Subscriptions or Forgotten Recurring Expenses
Your statements will help you understand exactly what you spend money on. You may discover you’re paying for things you don’t use or want. For example, you may discover that you signed up for a gym, or an online newsletter, or a meal service, that you can do without. Highlight these items and start a list of which accounts you should close.
Having only one expense for entertainment can add simplicity to a budget. You may want to choose one streaming service rather than several services plus a cable TV subscription, for instance.
If you know that you want to keep some but not all of your subscriptions and accounts, consider making a SMART savings goal for your reductions. SMART stands for specific, measurable, attainable, relevant, and timebound.
Include specific descriptions like, “I want to close two accounts per month and put that money into my savings account” or “I want to cut my overall budget by 10% through a combination of changing how I spend and cutting down on subscriptions.” Specific objectives like these can help you follow through.
List Your Necessary Expenses
Once you’ve trimmed the items that you can live without, turn to your necessary expenses. Identify each necessary expense that you spend money on regularly, like:
- Mortgage payments
- Medical treatments
Then, determine the average payments for each type of important expense. You can keep your categories simple, such as using the five-category budget’s list of transportation, debt payoff, savings, housing, and other living expenses.
By getting a solid understanding of your individual and total necessary expenses, you can perhaps find ways to save money. This information will also play a key role in a successful budget. After all, a budget is essentially understanding necessary and unnecessary expenses and making a plan for how to make financial choices in the future.
Having multiple accounts can be time-consuming and add to your expenses with extraneous fees.
Companies are often incentivized to sign people up for subscriptions and recurring payments, so it makes sense that we can upgrade our services for more than we actually want. Set a date to review all of your accounts at least once a year and cancel the accounts you don’t use, whether it’s a streaming service or a department store credit card.
If you have multiple credit card accounts, you can consider closing one—however, financial advisors often recommend against this. Keep in mind that closing a credit card account reduces your credit line availability, which can impact your credit score.
Some necessary expenses can be reduced without being cut entirely. You may have success getting multiple quotes from internet service providers, utility companies, or insurance companies, and then using those quotes to negotiate a lower rate or switch to a cheaper service.
Consider Where To Put Those Extra Dollars
After you identify ways to save by cutting expenses and closing accounts, you can plan what to do with that extra money. Here are just a few options:
- Pay down debt.
- Contribute to an emergency fund so unexpected events won’t derail your budget.
- Put it toward savings for a vacation or another major purchase.
If you want to prevent your expenses from creeping up again, consider using a simple budget template to make a plan for tracking expenses going forward. This can help you think twice about signing up for things you won’t use.
Frequently Asked Questions (FAQs)
What can you do to improve your budget beyond cutting unnecessary expenses?
Just simplifying your budget and choosing to only spend in those categories (perhaps through a budgeting app) reduces the things you have to keep track of. This can help you pay closer attention to what you are spending.
How do you explain cutting expenses to your kids?
Teaching kids how to budget is key to helping them achieve independence. You can develop lessons about cutting expenses by using examples from their daily life. For example, on a trip to the grocery store or while planning a vacation, you can talk with them about the various costs and how you can reduce your specific expenses to save money.
What should you do if your partner is in debt and won’t cut back on expenses?
Communication is key to avoiding frustration and tension over financial issues as a couple. First, learn whether you would be responsible for any of your partner’s debt. Understand how your finances, including your incomes, are combined. Each solution to spending and paying bills in a partnership will differ, but establishing boundaries and agreeing to terms will be a part of a successful plan.