6 Ways to Massively Reduce Your Expenses & Increase Your Savings
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Finance > Wealth Building
Oct 16, 2007
ayrhaven
6 Ways to Massively Reduce Your Expenses & Increase Your Savings
Well it's time to study the expense column very closely and identify where you can cut your expenses. You will be surprised to know that we can easily do without between 20-30% of our monthly expenses. 1) Study Your Monthly Expenses "Dispensable expenses" are stuff we buy on impulse to get a ten-minute gratification, and after that it would not make much difference to our lives. Or in browsing through glossy flyers and advertisements, we get attracted to special offers on stuff we do not really need. But we buy simply because it seems like a good deal. You must eliminate these expenses as, over the long term, it will cost you millions of future dollars. You would be amazed at the impact that a few extra hundred dollars in monthly savings will have on your future wealth. This next table shows you that a $300 extra monthly savings would accumulate into an extra $1.69 million in thirty years. An additional $600 saved would grow into an additional $3.38 million in thirty years, more than enough to retire on. 2) Pay Yourself First Most people adopt the earn-spend-save habit. In other words, when they get their monthly income, they will spend on all their committed and impulse expenditures. Whatever, they have left at the end of the month is what they save. Even if they set aside a budgeted expenditure, this strategy seldom works. Why? Somehow, something unexpected might come up that causes people to spend whatever they have, leaving nothing to be saved. Instead you must adopt the Pay Yourself First habit. Before you pay the grocer, the restaurant, the utility company, the TV repairman, you have to put aside a fix amount into your investment account. Then, spend whatever you have left. In other words, you must earn-save-spend. The moment you earn your income, you must immediately put aside 10-20% into a separate investment account. Then live off the rest of the 80%! The best way to do this is to make it automatic! Instruct your bank to automatically transfer 10-20% of your income into a separate investment account where the funds are not easily accessible. This investment account should not have an ATM card where you can draw it out. You should only have a checkbook which you use to pay for investments. Now, if you have got any form of consumer debt, you must modify this formula a bit. Deduct the first 10% and use it to pay off part of your principal loan. Then take the next 10% and put it into your investment account. 3) Stop Before You Buy & Procrastinate Before you buy anything, always stop and ask yourself the following questions: - Do I really need this? - Will I regret buying this three days later? - How many hours do I have to work to make back the money? - How much will this cost me in future dollars? Then, procrastinate in making a decision on whether to buy or not to buy. Say to yourself, "I'll think about it and come back tomorrow." Eight out of ten times, you will not go back and spend that money as you will probably forget about it. The best way to stop being a shopaholic is to get yourself so busy in purposeful and fulfilling work - especially meaningful volunteer work -so that you don't go shopping until you really need a particular item. Many shopaholics admit their weakness is due to spending their free time wandering the shopping malls. So, find a meaningful way to occupy your free time and you will stop wasting your money. 4) Destroy All your Credit Cards but One This next step will be painful but I guarantee it will shave off at least 15%-20% off your monthly expenses. Cut up all your credit cards but just leave one. With lots of credit cards, you will have easy access to lots of tempting credit. Just use one card with limited credit for all your expenses...and again, pay the full balance. 5) Plan your Purchases...Only Buy at a Discount You would easily save another 15-25% if were to plan your purchases, buying only when there is a special discount and buying in bulk. Remember the example I gave you earlier about Ingvar Kamprad, the founder of IKEA? He would only buy vegetables and fruits in the afternoon, when the prices have dropped significantly. As a kid, I observed my dad stocking up on toothpaste whenever the supermarket had a special promotion. He would stock enough toothpaste for six months until the next promotion. I also have friends who buy all their clothes twice a year, during the citywide sale. So plan your purchases with a three to six month horizon in mind and buy in bulk whenever there is a very special promotion. 6) Treat it as a Business Expense Even if you are a full time employee, you should register a business for income tax reduction purposes. You can use this business entity for internet business purposes or to market your intellectual property. With a business, you can take certain expenses like transport, entertainment, office supplies etc. and charge them as business expenses. Whenever you do, you get an automatic tax deduction. The higher your income tax bracket, the larger the savings. For example, if you pay 20% in personal income taxes, then every time you claim an expense as a business expense, you save 20%! So there you have it, the six ways to reduce our expenses by 20-30% immediately. Remember it will only happen if you start taking action on it right away! Only through the combined efforts of increasing your income and reducing your expenses can you save the cash necessary for you to invest and earn compound growth wealth that will lead you to financial freedom.
Adam Khoo is an entrepreneur, best-selling author and a self-made millionaire by the age of 26. Discover his million dollar secrets and claim your FREE bonus report 'Get Out Of The Rat Race Now' at Secrets Of Self-Made Millionaires.
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