Need cash flow? Consider reducing your largest expenses.
Housing, transportation, and food consume more than 60% of the average American’s income.¹ If you’re willing to cut costs in those categories by just a fraction, you could save far more than eliminating smaller budget items. Think of it like this—cancelling a few unused online subscriptions is a good start, but it might not save you nearly as much as downsizing your apartment!
Here’s how it works…
You’re ready to get your financial house in order, attack your debt, and start building wealth. Let’s say you earn about $70,000 per year. $40,000 goes towards housing, transportation, and food, you spend $5,000 on non-necessities, and the rest goes towards insurance, healthcare, and education.
Looks good, right? But when you crunch the numbers, you realize you can’t put away enough each month to reach your savings goals. What a momentum-killer! How are you going to free up cash flow?
By totally eliminating non-necessities like coffee from the shop and streaming services, you could get back $5,000 dollars a year.² Not bad, but not great either.
Or—to save twice as much—you could scale back your housing, transportation, and food expenses by 25%. It might seem radical, but it’s worth considering if it can help get you to your goals.
The takeaway? Before you hack away at your lifestyle, consider your non-discretionary spending. It’s an aggressive strategy, but ask yourself if there are ways you could slash your rent, mortgage payments, car payments, and grocery bill. If so, take advantage of them—they could free up far more cash flow than by just cutting non-necessities.
Not sure how to cut back on your top expenses? Stay tuned for creative strategies for reducing your spending on housing, transportation, and food. Articles that outline how you can save money on the largest items in your budget are on the way!
¹ “American Spending Habits in 2020,” Lexington Law, Jan 6, 2020, https://www.lexingtonlaw.com/blog/credit-cards/american-spending-habits.html
² “New Survey Finds Americans’ Spending Habits Are Ruining Their Retirement,” Cameron Huddleston, Yahoo! Finance, Jan 1, 2019, https://finance.yahoo.com/news/survey-finds-americans-spending-habits-100000015.html#:~:text=New%20Survey%20Finds%20Americans’%20Spending%20Habits%20Are%20Ruining%20Their%20Retirement,-Cameron%20Huddleston&text=GOBankingRates’%202018%20Retirement%20Savings%20survey,worth%20of%20expenses%20in%20retirement.