It never fails to amaze me how all at once, what was old is now new again. Originally, I wrote a piece on cutting expenses way back in 2012. Back then, it felt like everyone was still reeling from the 2008 recession and looking for ways to live frugally. Now, it is 2023 and layoffs are in the news again (myself being impacted by one earlier this year!) and it feels like a great time to dust off this tutorial on how to drastically cut expenses.
Even if the (financial) sky isn't falling for you, personally, chicken little, I recommend doing a glance over all your spending on an annual basis, just to make sure your money is nice, tidy, and working for you the way it should. You may see this annual “utility audit” or “bill audit” mentioned a lot on the pages of this website. Whatever you call it, sit down for a few hours once a year. I think it's important. Because when it comes to saving, every little bit counts.
I'm a fan of a once-yearly bill audit in order to find extra room in your budget, whether you're in financial crisis mode or not. Below is a step-by-step guide for how to drastically cut expenses in the event you lose your job, have a medical emergency, or just want to find extra in your budget to pay down debt faster.
How to Drastically Cut Expenses ASAP: A Step-By-Step Guide
Step #1 – Take inventory of all of your spending
The best way for you to drastically cut expenses is to know what your bills are — which ones you absolutely have to pay and which expenses are actually ones you can live without. Ideally by now (we're in our late 20's and 30's…yes?) you should have a budget. If not, here is my guide on how to build one. Bookmark this post for later!
Don't have a budget? Don't worry. Don't fiddle or stress with building one right now. That's for later when you have more of an income to play with. For now, take a deep dive into your debit/credit card statement and your checking account and write down everything you spend and put it into categories. Knowing what you’re spending, when you’re spending it, and why you’re spending can help you make decisions on what to cut and what to keep.
Step #2 – Separate expenses into “fixed” and “discretionary.”
Fixed expenses are things you absolutely have to pay no matter what you do like your rent or mortgage, utilities, groceries, and gas. You have to buy items like that to live!
The second category is what I call “discretionary.” Things that you don't need to get by but would absolutely spend if you had the money to do so. Items like clothing, eating out, subscription services, memberships, and more.
Step #3 – Cut your discretionary spending to the bone
The first place you should look when you need to figure out how to find money is looking at your discretionary spending: all of those things that fluctuate each month, that you definitely could cut back on: alcohol, dining out, etc.
If you just lost your income and need to stop spending immediately, you should be halting all spending outside of your bare essentials ASAP in order to ensure your emergency fund lasts as long as you need it to.
Step #4 – Figure out ways to lower your bills and reduce fixed expenses
Discretionary spending is easy to cut. But the good news is there are lots of ways to save more money, especially on your recurring expenses. One of my favorite things to recommend is to do an audit of your utility bills (again, annually.) Why? Because these are “fixed” expenses you pay each month. You know what you're going to spend and companies want to reward you for your loyalty.
At the end of the day, trying to lower your bills will only cost you a few hours of time and a little bit of your sanity. (And if you've found yourself suddenly without employment, a friendly reminder that you do have this time on your hands.) If you don't feel like doing the work yourself, apps like Rocket Money or BillTrim will negotiate your bills and cancel subscriptions for you on your behalf, often with just a few swipes.
But never underestimate the power of a phone call to customer service. By calling up my providers on my own last year, here's where I was able to nab additional savings:
- Cable: I finally cut cable and my internet bill went from 117.00 to 84.00/ saving 33.00 per month
- Security System: I negotiated a “customer loyalty” discount – from 48.00 per month to 38.00/ saving 10.00 per month
- Car Insurance: I previously had both home and car insurance with one company, thinking they were giving me the best deal…and that it's, well, you know, easier. After lots of homework, I found out that I did have the best price homeowners insurance with the company, but could get a much better deal on car insurance going with another provider. The switch lowered my car insurance from 163.00 each month to 116.00/ saving 47.00 per month.
- Total savings: $90 per month, which adds up to $1080 each year. There's the first $1,000 of your emergency fund right there!
Step #5 – Put the credit card away (or go all cash)
There's absolutely no judgment here if you need your credit card to fund expenses during periods you may be without income. In that instance, survival is the name of the game. But if you have an emergency fund and are struggling to stick to a budget, consider putting your cards away (I used to put mine in the freezer, “Confessions of a Shopaholic” style) or try out an all-cash envelope budget.
Step #6 – Evaluate ways to cut more
Once you've completed an initial pass at cutting your spending, it's time to think critically. Below are some questions to ask to see if you can reduce your expenses even further.
- Are there any changes you can make to your diet that will cut down on your grocery bill?
- Are there any services you’re receiving that you could get less often? If you’re doing something twice a month, could you do it once a month?
- Do you get any services that aren’t necessary, or that you could do yourself, like getting your nails done, changing your oil, or other things?
- Can you cut down on your water or electricity usage to make your monthly utility bills less?
Depending on your emergency fund and budget, you may want to try to reduce your expenses further, if you can.
Step #7 – Pick up a side hustle
Whether you're staring at a job loss or simply need to make more money for a new baby, debt pay off, or other financial goals instead of pulling out your hair, and frantically searching your couch for spare change, try your hand at a side hustle, which is important when it comes time to find the money for that next bill payment.
#1 – Writing articles
One of the most potentially lucrative ways to make money online is through freelance writing. I like LinkedIn or Upwork for short-term writing gigs.
#2 – Put your graphic design skills to work
There are dozens of ways you can make money off of your more artistic talents. From selling photo or art prints on sites like Redbubble or Society 6 to selling merch with some of your designs on them, this is a great way to make some passive income. Make sure you take some time to market your goods, so other people can discover your talents and pay you for them.
#3 – Baby/Dog Sit
No matter where you live, there's no shortage of parents who need someone to watch their kids. With some research and good references, you can find many in need of kid-watching services. And these types of services are often really great for word-of-mouth – you find one client and do well, they will recommend you to everyone in their circle because trustworthiness is paramount with littles and doggos.
#4 – Deliver food and meals or Drive a Rideshare
If you have access to your car and a smartphone, you can make ends meet while you wait for your income to return.
Like grocery shopping or going to stores? Sign up through the Instacart app to become a personal grocery shopper. Like other gig economy apps, you can control the schedule and how many jobs you take – making it the perfect side hustle when you're looking to make some scratch in your free time.
Or, you could become a food delivery driver and deliver takeout via the Postmastes app. It's perfect for those with full-time jobs because the busiest hours happen outside of the 9-5 window. You could also drive for Uber or Lyft.
#5 – Give tours of your city
If you've lived in the same place for years, chances are you know your way around. The tourist business is a booming industry, filled with people who want to get an insider's view of what it's like to live in a certain place. You can start advertising your own tourism gig, or sign up with sites like Vayable, Shiroube, or ToursByLocals
#6 – List a spare room
Speaking of the tourism business, travelers are always looking for a place to stay. Services like Airbnb are still popular, as they give people the feeling of staying at home and can be more economical than staying in a hotel. You can sign up to be a host with Airbnb, or rely on more traditional advertising methods like the newspaper, signs, or word of mouth to spread awareness about your spare room for rent.
Even if you're not a fan of strangers coming and going through your home, if you have a spare room, consider a roommate to drastically cut expenses and save money on your rent/mortgage payment.
Other side hustle content from the archives:
The Final TL: DR
Trying to cut back on your spending can feel like a damper on your life, but it doesn’t have to be. Doing an audit of what you’re spending for the not-fun stuff can save you financially when you need to drastically cut expenses, or at least, help you save several hundred a year.
While I recommend doing the free DIY bill audit because it saves the most money, I understand how time-consuming it can be to go out and get these lower rates. Bare minimum, if you don't have time to commit to lowering your bills, outsource to one of the providers listed above.
Lauren Bowling is the creator of Financial Best Life. Writing about money since 2012 (formerly as L Bee and the Money Tree), Bowling is an award-winning blogger and money and real estate expert whose advice has been featured on CNBC, Forbes, CNNMoney, Elite Daily, Business Insider, Redbook, and Woman’s Day Magazine and more. After selling the site to a division of The Motley Fool in 2019, Bowling is now back as the owner and primary voice behind FBL and is excited to continue educating elder millennials everywhere about how to afford their best life.