Contributing Writer at Tally
October 14, 2021
A recent study found that the average American consumer overspends by $7,400 per year. If you fall into this category, you might find yourself taking on debt to cover some of your expenses. Unfortunately, once you take on debt — especially high-interest credit card debt — escaping can be difficult.
One way to reduce the likelihood of taking on debt is by lowering your monthly expenses. We’ll outline what qualifies as monthly expenses, why it's important to monitor them and five ways to reduce them. By the end of this article, you’ll hopefully be ready to take control of your budget and lower your monthly expenses.
A monthly expense is one you pay on a regular monthly cadence. Your rent or mortgage payment would be one such example, since you owe it monthly. Purchasing a new TV, however, would not typically be considered a monthly expense — unless you were consistently buying one every four weeks or you financed the purchase and owe monthly payments.
Other examples of monthly expenses include:
Insurance payments like health insurance, car insurance, homeowners insurance, and pet insurance
Student loan payments
Credit card payments
Cell phone bills
Child care, such as daycare and babysitters
Other travel expenses for work, such as public transportation costs
Alimony or child support
Other routine expenditures, such as subscription services and cable
The above are examples of monthly expenses. Your personal finances may reflect other recurring expenditures that you've built into your monthly budget.
Knowing and monitoring your monthly expenses is important because it can help you avoid overspending. If you know how much you have to spend each month, you’re less likely to buy something you can't afford.
For instance, let's say that your net monthly income after withholdings for taxes, Social Security, and Medicare is $4,000 per month (this is otherwise known as your take-home pay). If your monthly expenses are $3,500 per month, you have $500 per month to put into a savings account or spend on things like entertainment.
Let's take this a step further and say you put $250 into a bank account to help build an emergency fund. Now you have $250 remaining for other expenses. Your spouse's birthday is coming up and you need to buy a gift and plan a fun night out. If you’ve been monitoring your monthly expenses, you know how much you can spend before you have to take on debt or start putting the expenses on a credit card.
By knowing your monthly expenses, you reduce the likelihood of having to take on debt. In turn, you can better manage your finances and potentially put more money toward things like retirement.
Now that you know what your monthly expenses are and why they’re important, let's take a closer look at some things you can do to lower them.
Building a budget allows you to better understand where your money is going. You can start by calculating your monthly income and expenses. You can look at your pay stubs to determine how much you’re making per month.
Then, break down your household expenses into budget categories. For instance, you may have all your homeowner expenses in one category and your car expenses in another.
Next, figure out how much you spend on each of these categories each month. Using a budget calculator or worksheet can help you better track these expenses and see how much you have leftover to spend.
One budgeting tip to consider is the 50-30-20 rule. This rule states that 50% of your net pay should go toward monthly expenses. If the number is higher than that, you can increase your income by possibly picking up a side hustle or focus on reducing your monthly expenses. Building a budget can hold you accountable and help you reach your financial goals.
One area that could be draining your household budget is your utilities. Fortunately, it's possible for you to reduce the cost of your utility bill. To start, remember to shut your lights off when you leave the house. You can also raise your thermostat when using the AC and lower your thermostat when using the heat to reduce energy consumption, especially when you aren’t home.
Smart thermostats are a solid way to control your energy usage. The Nest Thermostat, for example, saves 10% on heating and 15% on cooling on average. You’ll need to pay money upfront for these units, but they could cover their own cost with savings in the long run.
Additionally, you can make efforts to conserve water. Turn off the sink when you’re brushing your teeth. Avoid leaving the water running before you get in the shower. If you tend to take long showers, set a timer for yourself to keep things moving.
Today's monthly expenses are full of subscriptions and memberships. You may have gym memberships or subscriptions to newspapers and magazines. You may also subscribe to cable television or services like Netflix and Hulu.
Take a hard look at which of these services you really need. There are alternatives to each that can help you save money. For instance, instead of paying for a gym membership, you can commit to exercising at home or outdoors. You can pick up hiking or look for free fitness classes in your area.
Also, think about how much television you watch. Consider cancelling your cable service and signing up for a streaming service instead. If you’re signed up for multiple streaming services, pick one or two that you watch frequently and cancel the rest.
Finally, check to see if there is an annual purchase option for your subscription services. It’s sometimes cheaper to pay for a year upfront than to pay month to month.
Another great tip to cut down on your monthly expenses is limiting how much you eat out. Even if you only eat out for lunch once per week, you’re still spending roughly $60 per month, assuming a $15 lunch. This doesn’t include things like daily cups of coffee or dinners out on the weekends.
Instead of eating out, try meal prepping instead. When you go grocery shopping, buy enough food to make meals for the week. Take time at the beginning of the week to prepare or cook all of your food. By doing so, you won't find yourself opening the fridge and wondering what you're going to eat the next day.
If you’re taking on new debt, consider putting as much money as possible toward a down payment. Doing so lowers the total amount you have to borrow. This, in turn, reduces the amount you’re required to pay in interest. By cutting down on your interest payment, you'll end up saving more each month. You can put the money you save on interest into an investment account, potentially moving you one step closer to retirement.
Whether you’re trying to build your credit score or work toward retirement, controlling your monthly expenses is a big part of any financial goal. Understanding your monthly expenses can ultimately help keep you out of debt.
If you’re trying to get ahold of your monthly credit card debt expenses, consider Tally†. Tally is a credit card payoff app that can help you better manage your personal finances.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.