How to Cut Your Monthly Expenses

Everyone wants to save money. The more money you can save, the more you have for the future—whether you are saving for a wedding, vacation, retirement, or just a rainy day. However, many Americans spend almost exactly as much as they earn. In fact, the majority of people in the U.S. (62 percent) are living paycheck to paycheck.

Furthermore, Bankrate reports that nearly 1 in 4 Americans have no emergency savings at all. For many, inflation and unemployment are to blame; the same report from Bankrate states that a whopping 74 percent of respondents said economic factors are causing them to save less right now.

If you want to save enough money for something substantial, such as the down payment on a house or an extended trip abroad, you have to do your best to break the cycle of spending everything you earn. You must also try to conserve as much of your cash as possible to pay off outstanding debts, such as credit card debt or student loans.

Getting Started with Saving: Why You Need a Budget

The best way to start saving more money is to take a hard look at your monthly expenses and see where you can cut back. You can always find a way to reduce spending and generate additional savings, even if they seem menial at first. It all starts with taking charge of your monthly bills, developing a household budget that works for you, and adopting healthier habits around spending and saving.

Why is it important to monitor your budget?

A strong financial plan starts with establishing a household budget. You need to see where your money is going before you can determine where you can save. Here are a few basic steps to start developing an accurate budget:

1. Start by listing all of your income sources, and then list all of your regular expenses for the month. These expenses should include fixed costs, such as rent or mortgage, and variable costs, such as utilities and groceries. For variable monthly costs, use an average or median amount. The objective is to account for all of your income and expenses, so try not to miss anything.
2. Now, you need to determine the best way to maximize savings. Many personal finance experts recommend the 50-30-20 rule: 50 percent of your income for needs, 30 percent for wants, and 20 percent for savings. If you can manage to save 20 percent of your income each paycheck, you are well on your way to having a healthy nest egg, including retirement savings.
3. If you aren’t able to save that entire 20 percent right now, try to find a way to start putting away just one or two percent, and then see if you can increase it the next month. To find more money to save, you’ll have to scrub through your household budget to identify where you can cut costs. If you use the 50-30-20 rule, that leaves 30 percent of your expenses where you might be able to reduce your spending.

Refining Your Spending Habits: How to Cut Expenses

Combing through your budget takes time and patience, and you may have to experiment with different spending and saving strategies to find what methods work for you. Here are a few places to start when trying to shave off some savings:

1. Review your spending and identify household expenses you might be able to reduce.

Let’s look at some of the most common household expenses where there tends to be overspending:

• Utility bills: It can be easy to waste water and electricity, consequently wasting both energy and money. Cut your energy costs by lowering the thermostat, air-drying clothes instead of using the dryer, and unplugging energy vampires that continually run in standby mode. Watching your water usage can also save on costs—think carefully about how often you are watering the lawn, doing small loads of laundry that could be combined, or taking long showers. You also can reduce water usage in your home by installing low-flow fixtures and toilets.
• Cable or streaming services: In the age of digital streaming, people are multiplying their subscription entertainment services. Consider whether or not you need all of those premium channels. How many digital services, such as Netflix, Amazon Prime, and Hulu, do you pay for that you rarely use? This expense tends to surprise people with how quickly these monthly costs can add up over the course of a year. A 2023 Forbes Home survey reported that 47 percent of subscribers are paying for streaming services they don’t even use.
• Credit cards: According to USA Today, the average credit card debt per U.S. household is $7,951 per year. That means many households are carrying credit card debt and paying unnecessary monthly interest charges. If you can’t pay your credit card balance each month, consider switching to a lower-interest card or opening a rewards card that gives you cash back. You can also consult with your credit card company to see if they can offer you better terms for additional cost savings.

2. Avoid overspending and impulse purchases by paying with cash.

Many people overspend because using debit and credit cards is simply easier. One way to reduce unnecessary spending and be more mindful of your spending is to pay with cash, specifically for wants. If you have to pay cash for lunch or a cup of coffee, it may cause you to think twice about if the expense is really necessary.

Additionally, restricting yourself to cash purchases can help to reduce the likelihood of online impulse buying and save you money. Naturally, e-commerce transactions require digital payments, so opting for a trip to the store gives you more time to think over any potential spending.

3. Move found money into savings automatically.

Calculate what you are saving by cutting your expenses, and plan to move that amount into a savings account. To make transfers even easier, we recommend automating your savings by scheduling regular transfers from checking into savings.

You can also look for other creative ways to save your pennies. Services such as our Pocket Change program automatically add to your savings account by rounding up every debit card transaction and depositing the difference.

As your savings account grows, consider moving some of that surplus money into retirement savings. Putting your money into an individual retirement account or certificate of deposit will help you earn higher interest rates. You should also consider strategically investing your money as part of your retirement plan.

Maximizing Your Savings: What You Need to Know

To help maximize your savings for maximum return, talk to your financial advisor or banker. They can help you develop a strategy for how to cut expenses, grow your savings, and build wealth over time. 

Of course, knowing how to track expenses and cut down on spending begins with a comprehensive budget. For a bit more guidance when developing your financial plan, try using our interactive budgeting worksheet.