Simplify Finances

How Organizing your Finances can Increase your Savings

Do you remember your mom teaching you wants vs. needs? I would bet it probably happened in a toy aisle somewhere. There may have been a repeat lesson in a clothing store a few years later. It seems like somewhere along the line as we became adults we forgot that lesson. Suddenly because it’s our own money, we think those wants are actually needs. I think we could all use a refresher. We’re just going to use slightly different names, fixed mandatory and discretionary spending.

By breaking down our expenses into fixed mandatory and discretionary spending it’s easier to see the fluff we’ve let accumulate and to cut it out.

The first time I did this exercise I realized I was wasting $30 a month on random little subscriptions. Now $30 doesn’t sound like a ton of money, but that’s $360 a year! I think I can find a better use for $360 than wasting it on subscriptions I forgot I even had.

Fixed Mandatory

So what is fixed mandatory spending?

These are the set bills that you have to pay every month- your mortgage or rent, insurance, loan payments, etc. These are bills that don’t change in amount, and that you can’t control the amount you pay.  This does NOT include groceries or utilities. Yes, they are obviously mandatory, but you control the amount you pay for each, which is why we’re going to consider them discretionary spending.

Rank by amount

Now, I want you to list out all your fixed mandatory expenses with their amounts from largest to smallest. Pull out a past bank statement if you need to make sure you don’t miss anything.

By doing this exercise, I realized that the gym membership that I LOVED, was my second highest expense after my mortgage. Gulp. That didn’t sit well with me and was the motivation I needed to find a cheaper way to exercise.

Do you have any expenses that jump out at you like that? Any that you’re surprised where they fall in the lineup?

Rank by importance

Next, I want you to make a list of these same expenses, but rank them according to their importance. How vital are they to your survival?

Compare

Now, compare your 2 lists, your one of the expenses ranked by the amount and the one ranked by importance. How do they compare? Are expenses in similar spots? If you find that an expense that’s low on your importance list is high on your amount list, you might want to think about cutting it. In fact, reassess all the expenses that are low on your importance list and see if they can’t be cut or reduced.

If you’re dragging your feet on eliminating an expense, try just canceling it for the month. You can always get it again, but you might find that you don’t miss it.

Discretionary Spending

Ok, next is your discretionary spending. This is everything else that you spend money one. Some are necessary things, like groceries and utilities. Some are not so necessary things like eating out and that shirt that was a really good deal.

Rather than nickel and dime every purchase you make, let’s just look at 2 big categories that can take up a lot of money: Groceries, and utilities.

Groceries

Yes, you need groceries, but I bet you could cut your bill by $50 without trying very hard. Maybe even $100 or more if you got organized and made a plan. Try spending just $50 less on groceries next month. That would leave you with $600 a year more in your pocket.

Utilities

Utilities are in your control and it’s easy to reduce them- just use them less! Try changing your thermostat a degree or two- I bet you won’t die. If the weather is nicer outside, PLEASE open a window. It’s free.

Try reducing how often you water your grass. Only run your dishwasher and washing machine when they’re full. Turn off the water when you’re brushing your teeth. Just be conscious of the water you’re using, it’s not free- it’s often money that’s just going down your drain.

What’s your internet speed? Try reducing it for a month and see if it’s still enough for what you need.

The big takeaway with discretionary spending is question everything! Just because you’ve been paying a certain amount doesn’t mean you have to be paying that amount. Make it a game to see what simple tweaks you can make to reduce your spending. Just be conscious of your purchases and utility usage.

Have you found some expenses you can cut or reduce your spending in? Just organizing your expenses into fixed mandatory and discretionary helps you to better remember which things are wants and which are actual needs. Don’t waste your money on the unnecessary!

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