Thursday, May 8, 2014

How do you spend your money?

My condo, my single biggest monthly expense
The first step to reducing your expenses is to understand how you’re spending your money.  You should already have a sense for where your money goes, but having a precise view gives you a better understanding of whether you’re spending your money wisely.

It turns out that my monthly expenses come out to around $3,150/month or close to $38,000/year.  Most of my money goes towards paying off credit cards (always pay off the balance due and do not carry a balance), my mortgage, and my homeowner association dues.  A little over half of my expenses go towards housing (building equity and paying interest).
My monthly expenses by category

The next biggest expense is my credit card.  My credit card breaks down into many categories with about 25% of my expenses going towards groceries, followed by 17% for food/drinks when eating out, 12% for cell phones, 11% for flights, 9% for merchandise, and the rest spread across a number of categories. 
Monthly credit card expenses
The benefit of this process is to understand where your money goes and where you can reduce your expenses.  For example, maybe you’re spending a lot eating out and you should buy more groceries instead, which will save you money.  I was pleased to see that most of my food budget goes towards groceries, which is significantly less expensive than eating out.

I personally found it interesting that my cell phone bill was so high.  I’m going to look into finding a cheaper plan.  I also found that my internet was very expensive and that I could find a better deal by switching to a cheaper and faster competitor.  Lastly, I also realized that I was overpaying for my gym that offered more than I needed and that I should switch to a cheaper competitor that offered me exactly what I needed.  How are you spending your money and what tweaks will you make?

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