How to reduce your expenses

How to reduce your expenses

The first step of my Wealth Wheel is to reduce your monthly expenses where possible.

Wealth Wheel

That being said, time and again I have made it clear that I am not trying to get you to cut up your credit cards or to cut out every luxury from your life. What I mean is that maybe by looking closely at your bills and habits you mind find ways to trim the fat and invest what you save.

So where should you start?

Start by getting all of your major expenses together. I’m talking about car insurance, home insurance, consumer debt, gas credit card, grocery bills – the whole works. Then with each bill, ask yourself honestly: is there any way for me to reduce this expense?

For example, I recently reduced my annual insurance payment by getting policies with one single provider. Can you do the same?

Or can you save on travel expenses by carpooling, using public transport, or riding a bike? Can you shop a different grocery store? Can you eat fruit in season and buy local?

If you want to take this a little further, make a simple Excel spreadsheet with three columns labeled: “Before”, “After”, and “Savings”. In the first column, write down your current expenses. In the second one, write down what they could be after you make a few adjustments. Even if the adjustment seems small, write it down. Write down the amount saved on each expense in the “Savings” column.

Now, add up all of the savings. How much is it? $50 per month? $100 per month? More? Are you surprised?

Now here’s the most important part – don’t use those savings to buy an expensive toy that will add another expense. Use it to make an investment. The money you save by reducing your expenses (together with any money you can set aside from your salary and money you make doing odd jobs or selling stuff) should all be put together into a special “Seed Money” bank account. Once it has reached a certain level, you buy an asset. The asset spits out cash, you keep making deposits with savings, and once it has reached that same level again, you buy a second asset. And so on.

The Wealth Wheel works, as long as you follow all the steps in order.

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