Updated Aug. 3, 2021, 9:45 p.m.
We have already talked about how approximately half of Americans are living paycheck to paycheck. For many, they simply do not have a choice but to allocate most of their income towards the cost of living. This means that they do not have much, or any, disposable income to afford much else.
Depending on the circumstance, some have already made sacrifices to make ends meet, or even tried budgeting their money to reduce any discretionary spending they may have. If this sounds like your situation and you are looking for more ways to save, then you need to look towards decreasing your necessary spending.
By nature, you cannot completely eliminate your essential living expenses because they are necessary for your survival. Moving into the modern era, some things we now consider to be essentials could be a cell phone and internet access in addition to providing ourselves with food, water, and shelter. Since we regard all of these items as necessities, there are certainly many ways to reduce your bills without making too many sacrifices.
You may be able to shop around for better rates on insurance, switch cell phone and internet plans while taking advantage of promotional offers, or simply reduce utility use. Many people just accept their bills as is, but with a bit of effort there is usually some action that can alleviate your spending on bills.
Here are a few examples of actions you can take to cut back on necessary spending and recover some of your income.
It would be reasonable to assume that the majority of your living expenses are funneled into your housing costs. If you own your home, first check to see if mortgage interest rates have gone down since your home purchase. Refinancing your home to a lower rate makes sense because it will reduce the amount of interest you pay towards your monthly bill. To determine if it might be worth it to refinance your home, use our mortgage calculator, just don’t forget to consider closing costs.
In hindsight, many people feel that they have overcommitted to owning or renting a home that is outside of their budget. A common figure suggested by many advisors is to not spend more than about 30 percent of your net earnings on your home payments. If you believe you may be overspending on your home, a drastic change would involve relocating to regions with more affordable housing. Downsizing your home or moving to an area with a more fair housing market is always an option on the table that would greatly impact saving you money. This may not be feasible for you and this is usually done if no other options remain, since there exist many other solutions.
When it comes to choosing your next vehicle, avoid expensive or sporty cars because they carry higher insurance premiums and usually consume more gas. Instead, choose a more modest, low maintenance car with high safety ratings. Shopping for a used vehicle could also be beneficial since the majority of a new car’s value depreciates rapidly in the first year of ownership.
For your current car, it may be worth shopping around for insurance. The auto insurance industry is competitive in attracting new customers by frequently offering deals. Many auto insurance companies like Allstate, Nationwide, and Liberty Mutual offer discounts as rewards simply for having a safe driving record with few violations.
Finally, if you do have a safe driving record, consider increasing your deductible, or your out of pocket minimum expense before your insurance kicks in, to lower your premium. Put the amount that you save into your emergency fund in the event of an accident, and it makes even more sense.
If you are responsible for selecting and paying for your own healthcare, then there are a few things you can do to make it more affordable. A preferred provider organization (PPO) type of health provider allows you to see out of network doctors without any referral, but this freedom has higher premiums than a health maintenance organization (HMO) like Kaiser. So, the more economical choice is the HMO.
If you are healthy and seldom visit the doctor, you can lower your premium by choosing a plan with a high deductible. However, this comes with a risk in the event of a medical emergency and you may end up paying more. Health Savings accounts (or HSAs) reserve money for medical expenses and are tax advantaged. For added healthcare savings, pair a high deductible plan with a HSA.
Similarly to refinancing your home mortgage rates, you may also refinance your auto loan. Apply for several lenders at once to compare (it’s free), but note that this depends on (and impacts) your credit score.
You may also negotiate for lower credit card interest rates if you have a good credit score. It may be worth a try to see if it is possible but be prepared to be declined. Simply call your credit card issuer (phone number located on the back of the card) every few months to speak to a representative and politely request for a lower rate.
Only a few ways to save more on necessary spending were outlined above, but there are many more possibilities to think about. This article serves as a reminder that it does not always require making sacrifices or an increased income to improve your financial situation. It can start with a few small changes to begin saving money.
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