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Did you know that cutting expenses can bring you wealth over time. Have you ever seen how making little adjustments can add up to big money over time?
I have written quite a few posts about saving money and ways that I do that like 15 Things Frugal People Don’t Pay For, 15 Essential Grocery Tips That Feed My Family of 8 For $250 a Month, and How we Gave Up Cable, and How You Can, Too. Let me explain a little bit as to why.
According to the latest government reports, the average American household of four people spends over $60,000 a year. Can you imagine what my expenses would be as a family of nine if these stats were true for us?! I can assure you we would not have the income to support this, not even close.
But, even using these figures, by cutting expenses by only 10 percent, you would be saving a whopping $6,000. $6,000!!! That is a lot, and that is only 10 percent.
I don’t know about you, but when it comes to savings, 10 percent is something that I rarely do anything with, meaning, if there is a sale with 10 percent off, I don’t even bother. If the sale if for 50 or 70 percent off, then that is a sale that I like to be a part of. So in that context, saving only 10 percent is small peanuts.
So, what could you do with an extra $6,000 a year?
Better yet, since you are already used to spending that money in some way, what if you invested that money?! You could fund a nice retirement right there.
For this reason, when I cut expenses I almost always put that money someplace useful. This is part of how we were able to get out of debt so quickly.
However you make this “found” money (found meaning it used to be “lost” somewhere else) to use in your own life, over time it could bring you great wealth. I made over $100,000 on my “found” money from cutting expenses in interest I didn’t pay on my mortgage over what the full term would have been.
Want an illustration of a way I did this in my own life in the past few months? Read here in the italics, otherwise, skip over the part in the italics and read on.
Medical costs are rising, and they have been for a few years, and our premiums have risen by 75 percent just in the past two years alone. There are ways you can save on medical costs, as I spoke of in Secrets to Saving on Medical Costs, but again our premiums went up for this year.
After extensive research, comparing, and reflection, we decided to go with a catastrophic plan this year. With the increase in the premium rise along with the high deductible anyway, this was the right fit for us this year. We would have been paying out of pocket whether we needed to meet a big deductible or a really big deductible.
This catastrophic plan actually gave us a drop in premium since we were downgrading plans. We are “saving” about $150 a month in premium, which I am physically taking and putting in a separate account to cover the medical expenses that we do have. I know that if I just left that money in the checking account, it would go someplace else. This way, in addition to our health savings account, I actually have money to use to pay for medical expenses without having to actually write the check.
In this illustration, I will have saved $1,800 by the end of the year from the $150 a month savings on premium. If I don’t use that entire $1,8000, I will just leave it there for next year and so on. In a way, I am self insuring. But what I am really doing, is putting my savings to work for me.
So, why does cutting your expenses make such a huge impact? Well the way I see it, you can only put money in your pocket in one of three ways:
- getting a pay increase
- selling stuff
- cutting spending
Why is cutting expenses the easiest way to increase wealth? Let me show you.
- When you choose to cut spending, your money will add up much more quickly than it would with getting a small pay increase. In this same way you will make more in savings by cutting expenses than you will selling stuff in most cases. Cutting spending and doing so permanently packs a huge punch over time.
- You cut out the middle man. With a pay increase, you are still being taxed on that increase. However, when you are saving through cutting expenses, you are keeping the entirety of what you are saving (and actually earning interest, therefore making money if you are investing it or paying off debt somewhere).
- Obviously your savings don’t need the approval of anyone but you and your family as a pay increase would.
- When clipping coupons, making a call to cancel cable, or reworking the family budget, you are making much more “per hour” than you would most likely ever get in a pay increase. Even cutting eating out a couple of times a month to make a meal instead gives you an overall net earning that will add up to more than an hourly wage increase does.
- Making lifestyle changes that put more money in your pocket usually gives way to additional lifestyle choices that put more money in your pocket. Cutting expenses in one way often breeds the desire to get really serious about cutting more expenses. It becomes almost like a game to see how fast your savings can add up.
Most of us would love to have more money whether it is because we are stretched too thin in our budget, want to purchase something, or are looking to reduce debt. Saving money by decreasing expenses is a great way to do that. I am no expert, I am just someone who has done it, and it worked well for me.
Does saving money through cutting expenses seem reasonable to you? If so, how can you get started?