5 Ways to Cut Your Expenses...

Reducing your expenses is a daunting but necessary task for the majority of us. The more famous personal finance gurus usually start with cutting expenses to the bone as a path to wealth. Cutting expenses is a fine but it's what you do with the savings that is the real path to wealth. That said, I came up with a short list of steps to effectively cut your expenses and to stay focused during the task.

1. Prioritize

That's right. You have to sit down and really think about what should be paid first, last and what you can cut.

Your dwelling should take priority in this list. That means your rent/mortgage should be first on the list. Then utilities, insurance and taxes. I say insurance because if you don't pay your bill in most cases you will experience some type of adverse action (i.e. license suspension, mortgage cancellation, etc.). Taxes are self explanatory (you risk incarceration for not paying your taxes or at the very least foreclosure).

2. Pay bear minimum.

This applies if your in the middle of a debt snowball or just in debt. Just pay the minimums temporarily until you can understand where you are spending your money. This may not be an area where you can effectively reduce expenses.

Also check your bills because some services may be charging you for services you haven't used. In affect you've been prepaying your bill.

3. Cut all luxuries.

This is also self explanatory. However, I will spell it out for the readers who insist that cable is mandatory. Cut the magazine subscriptions, cellphone contracts, cable, the daily trip to Starbucks, and the monthly subscription to Netflix. I can go on but you get the picture.

4. Build an emergency fund.

Now that you've cut everything that can be cut, you've shaved the phone bill, started using coupons for grocery shopping and even started recycling the hundreds of plastic water bottles you use during a given month, start funneling the savings into an emergency fund if you don't have one.

5. Apply some of what you cut to debt, save the rest.

Once you accumulate a good sized emergency fund funnel about half of the savings back into your debt snowball and knock down that debt. This is the expense that is really holding you back because it's working against you exponentially. The other half should continue to fund your emergency fund.

Most people think that an emergency fund has to be $x.xx, in fact there is no limit to how large your emergency fund should be but there should be a minimum. In other words, just keep plowing your cash into your savings vehicle without regard to it's earmark. In no time it will be large enough to fund all your mini emergencies, a car purchase and maybe even a down payment on a home.

~MafiaDon