Many of us subscribe to a culture in which instant gratification generally wins out over sound financial decisions. Case in point: 84% of Americans admit they fall victim to impulse buys, and 75% of working adults live paycheck to paycheck because they don't have any money in the bank.
It's therefore encouraging to learn that 66% of Americans are taking steps to cut back on spending. That's the latest from Bankrate, which found that while increasing savings levels was a big motivator behind the decision to curb expenses, compensating for stagnant wages and avoiding or limiting outstanding debt were also key drivers.
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Given that more than 60% of Americans aren't equipped to cover a $1,000 emergency with savings, cutting back on expenses seems like a sensible move. Of course, actually taking that step is easier said than done, so if you're eager to spend less but aren't sure how, here's what to do.
1. Create a budget
It's hard to do a good job of cutting back on spending when you have no idea where your money goes month after month. If you're serious about curbing your expenses, you'll need to create a budget and understand what your bills actually look like.
The good news is that putting together a budget is easy and doesn't require a ton of time. Just list your recurring monthly expenses, factor in one-time expenses (like subscription renewals), and compare your total spending to your total earnings. From there, you'll be able to see which expense categories are costing you too much so you can make impactful changes.
2. Set priorities
It's not easy to forgo the things you're used to, but if you're serious about cutting back, something will have to give. What that something is, however, will depend on what's most important to you. So take a look at your budget, see what's eating up large chunks of your cash, and decide which expenses you can most easily live without.
If, for example, you don't tend to spend much time at home, you might consider downsizing to a smaller living space and banking the difference. On the other hand, if you enjoy cooking meals in your larger kitchen and entertaining in your oversized living area, keep that home but pledge to buy less clothing and electronics. The key is to establish priorities so that you know where to keep paying up and where to scale back.
3. Automate your savings
If you've ever started a diet and kept at it for several months, only to eventually get tired of eating salad and grains all day, then you're no doubt aware that good habits can be difficult to maintain. And that includes saving money. Maybe you'll do a solid job of limiting your spending for a few weeks or a few months, but what's to stop you from reverting to your old ways the moment you get sick of depriving yourself of life's luxuries, both large and small?
That's why it's smart to automate your savings rather than count on yourself to continue keeping your spending in check. You can do this in a number of ways. If you're behind on emergency cash, arrange for a portion of each paycheck you receive to filter directly into a savings account. If you have a decent cushion for near-term surprises, sign up for your company's 401(k) plan and send some of your earnings directly into that retirement plan. Once you stop seeing that money in your paychecks, you'll lose the temptation and ability to spend it -- and all without torturing yourself.
If you're doing well on the savings front and aren't saddled with debt, then by all means, keep spending away. But if you're low on emergency cash, behind retirement-wise, or loaded with outstanding loans, you'll need to make an effort to spend less and save more. And the sooner you do, the better.
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