Why Lowering Your Expenses Should Be Your #1 Financial Goal This Year
February 26, 2018
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If you’ve decided this is your year to get ahead financially, you’re probably wondering which money issue to tackle first. Should you pay down debt or finally build an emergency fund? Maybe you want to start a side hustle that leads to a higher income later on, or go back to school to earn a certification so you can earn more at your job. Any of these goals are noble and worth pursuing, but it can be difficult to decide what to do first.
But, what if we told you that one simple financial move could solve nearly all money problems you have? What if you could make one sweeping change that could help you wipe away debt, have more spending money for today, and save for the future?
Crazy enough, there is one financial step that can solve a boatload of financial problems in one fell swoop. It’s called lowering your expenses, and it’s the smartest financial move anyone can make this year.
5 Reasons Lowering Your Expenses Should Be Your #1 Financial Goal This Year
Lowering your expenses isn’t always easy. Most of the time, it requires some sacrifice and some financial cuts you may not enjoy. To really cut your spending, you may need to take some uncomfortable steps in your life – steps like using a budget for the first time, giving up expensive hobbies like going to bars or dining out, and avoiding situations where you’re tempted to spend.
If you’re thinking none of this sounds fun, you’re right because it’s not. But it may be the ticket to the financial freedom you want – or even your ticket out of debt and stress.
Here are five reasons lowering your expenses and cutting your bills may be the best financial goal to pursue this year:
Lower your expenses gives you an instant raise. Imagine you earn $4,000 per month after taxes and spend every cent plus some. As a result, you’re slowly racking up credit card debt every month. You wish you could get a raise at work, but you haven’t had one in the last few years. As your debt continues piling up, your monthly payments eat up more and more of your income.
Now imagine you found a way to cut $1,500 out of your monthly spending. You quit dining out to save $600 per month, cut your grocery spending from $800 to $500 per month, cancelled your cable bill and massage subscription to save another $300 per month, and cut all unnecessary entertainment, clothing, and miscellaneous spending for another $300 in savings per month.
All of a sudden, you have $1,500 extra dollars every month, and that’s without getting a raise.
Having more expendable income makes it infinitely easier to pay down debt. But, what will you do with that money? Ideally, you’d start throwing more of your extra cash toward your highest interest debts in order to pay them off straight away. With an extra $1,500 (or any other amount), you may be able to pay off your debts at a much faster rate.
At that point, you could also open a 0 percent APR credit card to pay down debt even faster. These cards offer zero percent interest from 9 to 21 months, and some even come with no balance transfer fees. Without paying interest – and with more money in your pocket – your path out of debt becomes much easier to spot.
Lower bills = more opportunity to save. In addition to having more cash for debt repayment, having fewer (or lower) bills makes it a lot easier to save. Imagine you pay off your debt with fervor but also set aside a few hundred bucks every month. All of a sudden, you’ve gone from barely scraping by and racking up debt every month to paying off debt and actually saving money for once.
You could finally build an emergency fund. When you’re barely getting by every month, one financial emergency or unexpected bill can send your finances into a tailspin. For example, having a leaky roof or a car break down can seriously wreck your finances in a hurry – leading you to run short on cash and borrow more money to dig your way out.
The best way to prepare for unexpected expenses is and has always been your emergency fund. This fund can include anywhere from one month to six months of expenses, and can pick up the tab if you face an unexpected bill.
Having fewer expenses makes it easier to endure a financial crisis. Speaking of unexpected bills, what happens if you lose your job? What would you do if, all of a sudden, you or someone in your family became deathly ill?
If you’re living paycheck-to-paycheck, any of these emergencies could cause a financial catastrophe. When you can’t keep up with your bills already, a job loss, health care, or emergency of any kind can lead to all kinds of financial issues, including foreclosure or even bankruptcy.
But, life gets easier when you have some wiggle room in your budget. When you’re able to save a few hundred – or a few thousand – dollars every month, it’s a lot easier to weather financial storms – and save up the money you need to overcome them.
The Bottom Line
Paying down debt is a great financial goal, but it can be difficult to make a dent in your bills if your spending stays the same. Likewise, the idea of saving money is a good one, but impossible to see to fruition if you spend more than you earn.
The best way to achieve all your financial goals is to slash your spending and cut your bills. This often means going without and making some difficult trade-offs, but it’s often the only way to get what you want – financial freedom.
If your goal is getting ahead this year, something has to give. Very often, it’s you who needs to give something up.