When you need to (or want to) live on less, here are the steps you can take to streamline your spending so you can afford to make less money.
Last time, I talked about what to do in order to earn more income.
But what about the opposite case: what about if you want to figure out how to live with less money?
This isn’t an academic question. Perhaps you’re switching careers, maybe starting your own business, effecting a change in your income in the process.
Perhaps you’ve become unemployed, and are looking to live off your emergency fund for a bit. You’d probably not be looking to spend the same amount in that case.
Or what if you just want to live on less than you are currently living on, so as to put more money away for the future, or just because that’s what the FIRE movement says to do. 😉
In all these cases, the end result is the same: you need to figure out how to live with less money.
So let’s talk about how to do it.
Table of Contents
Decide your level of restraint
When you’re living with less money than you’re used to, you need to decide “how low” you’re going to go.
Is this a situation where you decide that you want to just cut back a little bit, or is this a six-alarm, I-need-to-cut-everything-to-the-bone kind of plan?
That decision affects all the other decisions you’re going to make later. As in, are you trying to cut back on some “unnecessary” spending, or are you trying to see just how little you can live on?
(Everything is subjective though. Even going as severe as possible is still not universal, as some people can live on much less than others without discomfort. Will you sell your home? Will you become a “freegan”?)
Determine your current bills
As the saying goes, you can’t get where you’re going unless you know where you are.
And so, before you can reduce your spending, you need to figure out what your baseline is.
Longtime readers of this site will no doubt recognize where I’m going with this. You need to figure out what you spend. And it’s best to start with bills, which are much simpler to manage than expenses.
(Don’t know the difference between Bills and Expenses? Here’s a cheat sheet.)
Make a list of all the bills you currently have. The easiest way to do this is to log into your account online, and just scroll back for the past month. (If you want extra credit, do the same with bills that happen yearly too.)
Figure out which bills to cut
The next step is to decide which ones of these bills are “necessary”.
I put “necessary” in quotes because this is all dependent on your situation and how much you want to cut back.
Go through the list and decide which ones you want to cut. Subscriptions are the easy ones to cancel, but you want to examine all of them against your goals. Get creative; can you lower your car insurance?
Do the same with your expenses
Once you have your bill-reduction plan in place, the next step is to do the exact same thing with your expenses (which, remember, is all the other spending that doesn’t fit into a neat monthly/regular charge).
This one is more challenging to do than bills, because you have decide what is necessary for more purchases. How much do you want to cut? And where do you cut back? Groceries? Restaurants? Stuff for the home? Food for Fluffy and Fido?
This is a situation where perhaps going for a percentage decrease might be more warranted, just because it’s so hard to make the decision with every purchase as to whether it’s necessary or not.
But in order to determine how much that decrease is, you have to—you guessed it—know what your expenses are.
So I recommend tracking your expenses for a month, to see how much you’re spending. (You could find this out log on to your account online, but it’s harder to get a clear picture since there are so many different charges.)
Once you have that, you can decide how much you want to cut back.
Add it up and try it out
By this point, you will have determined that you have a number of bills that you can either cancel or reduce, and you will have decided upon a certain reduction in your expenses too.
How much does this net you?
For example, let’s say you regularly spend $2,000 in bills and $2,000 in expenses in a given month. You’ve identified $500 in bills you can get rid of. (Damn, there were a lot of TV/cable subscriptions on your bill.) And you decided on a 20% reduction in your expenses across the board, which amounts to a $400 monthly savings.
So with this plan, you’re slated to go from $4,000 in outgoing money to $3,100 in outgoing money, a reduction of 23%.
Is that enough savings for you? If it is, then your next plan is to try it out. Effect those changes. Cancel those bills. Spend less. Let’s see if you can do it.
After all, a plan that you can’t follow is no plan at all.
The limitations of this plan
It would be great if we could live on next to nothing, right? We could retire at twelve, like all of those FIRE kids.
But as much as we would like otherwise, there is a limit to how much we can cut. That limit is different for everyone, but everyone has a limit.
So while I think it’s great to cut unnecessary spending, I think that it’s probably a better play in the long run to focus less on what you can cut, and more on how you can earn more.
Now, if you’re going through a difficult financial situation, this is nothing you don’t already know. But in that case, this plan is just a stopgap measure; you’ll be looking for income ASAP.
But regardless of what your endgame is, with these tips above, you have all you need to be able to make less money. Because when you spend less money, you can afford to make less money.