Canceling Netflix will not make you rich. Dropping the occasional Starbucks coffee will not save your finances. In this article, I’ll give you a fast, no-BS way to consistently save a lot of money.
Here’s the short answer:
To save a lot of money fast, concentrate on housing, transportation, insurance and food. On average, these four items make up more than 75% of the budget. Focusing on them, you can save roughly $1,250 monthly.
My basic philosophy when it comes to saving money is this:
Small things make a small impact. Big things make a big impact.
Therefore, focusing on housing, transportation, insurance and food expenses is the most impactful thing you can do to better your finances.
Below you see the average American household’s monthly spending habits:
Notice how “Entertainment” is only $243 per month? That is why cutting down on stuff like Netflix doesn’t even make a dent in your expenses. It’s immaterial!
Housing and transportation alone are over 50% of the average American’s monthly budget. It’s therefore logical that’s where you should start cutting down to save a lot of money fast.
Even though saving money can’t make you rich, it can put you in a position to become so. I’ll give you the four simple steps I took to start saving up to thousands of dollars, every single month.
Oh, and if you want to figure out how much to save, you can check out one of these articles:
– How Much Should YOU Save Per Year?
– How Much Money Should YOU Save Per Day?
How To Save a Lot of Money Fast: (Step-by-Step)
As mentioned, I’ll break it down into four steps. Please understand, that the steps are simple, but not easy.
Every step takes some good ol’ work, but trust me, they’re worth it.
#1: Figure out your monthly expenses
We’re not about to make a budget, but something similar.
In a budget, you prepare for future expenses. In figuring out your current expenses, we’re looking at the past.
We do this FIRST because you need to know where you are, to figure out where to go.
Before starting to cut down on random expenses arbitrarily, you should get a good overview of your finances. Only then can you effectively and systematically start cutting expenses.
Suggested reading: Is Saving 40% Of Your Income Good?
Five steps to calculate your expenses:
- Get a list of your expenses for the last three months. We’ll take the average of three months because it varies a bit from month to month. Lists like this can often be found in your online bank account. If you don’t know how to figure this out, you should start tracking your spending by saving receipts and logging them weekly.
- Sort all the expenses into “categories”. By categories, I mean stuff like “housing”, “transportation”, “food”, etc. When budgeting, we’ll call these categories “items”.
- Add all the expenses in each category together. For example, if you had ten different expenses of $14 each on the “transportation” category in the last three months, add it all together and write “$140” as your total expense for transportation. At the end of this, you should have the total amount spent in the last three months in all the different categories.
- Divide all the “total expenses” for each category by three. Remember, we got the expenses from the last three months. We need to divide it by three to get the average monthly expense.
- Add it all together. This will show you your average monthly expenses, based on the last three months.
You should now know the following:
- How much money you on average spend monthly on each of the items.
- How much money you on average spend in total every month.
I recommend sorting the data in a table like the one below. I like to use Excel or to go “old school” and whip out the pen and paper.
| Items | Expenses |
|---|---|
| Housing (rent or mortgage, electricity, water, etc.) | $1,500 |
| Transportation (Car, bus, Uber, etc.) | $600 |
| Food (Groceries, eating out, beer, etc.) | $450 |
| Insurance (Health insurance, life insurance, etc.) | $350 |
| Clothes (Pants, jackets, shirts, etc.) | $75 |
| Personal care (Gym, makeup, supplements, etc. | $100 |
| Subscriptions (Netflix, Spotify, Disney+, phone subscription, etc.) | $65 |
| Hobbies (Guitar strings, wheels to longboard, books, etc.) | $75 |
| Entertainment (TV packs, bowling, sports games, etc.) | $100 |
| Miscellaneous (Birthday parties, Christmas gifts, and “other stuff”) | $50 |
| Total Expenses: | $3,365 |
If you are single, you should aim to live on $3,000. If you’re able to be frugal, you can even go for living on $2,000 a month. (If you’re extremely frugal, shoot for $1,800 a month)
If you’re a family, you should aim to live on $4,000 or less a month.
With your spending habits illuminated, let’s move on to the next step.
#2: Cut down on housing and transportation
If you’re like most people, housing and transportation are the two largest items on your list of expenses.
As the intro mentions, housing and transportation combined are over 50% of the average monthly budget.
Therefore, this is where you should start to chop.
Not only will you save big money, but since most of the expenses related to these items are fixed, you’ll save them consistently without added effort!
You see, cutting down on fixed expenses is preferable to variable expenses. Once a fixed expense is cut, it stays cut every single month (unless you “uncut” it).
For these two reasons, housing and transportation are the perfect expenses to cut: they are huge and largely fixed!
The only problem with cutting down on these two is that it’s hard. We often have an emotional relationship with our cars and/or our apartment/house.
But if your living and/or transportation situation is eating your budget thin, that relationship is toxic!
As with all toxic relationships, it’s best to get out of there, sooner rather than later.
The hands-down best way to cut housing and transportation:
In a single move, you can cut down on the two most significant expenses you have:
Move to a cheaper apartment or house closer to work.
That move is great for the following two reasons:
- Moving into a cheaper place cuts down on your largest monthly expense; housing. Saving 20-40 percent on housing might be $300 – $600 every single month. In some cases, people can save over $1,000 on this move.
- Moving closer to where you spend most of your time, usually work and friends, significantly decrease your monthly commuting. If you move close enough, you can almost eliminate this expense altogether by biking or walking to work. This might save an additional $300-$600 a month, in some cases more.
By doing this, I personally cut my expenses by roughly 40%. Since the expenses were fixed, I saved that 40% consistently, month after month.
Suggested reading: Is Saving 20% Of Your Income Enough?
#3: Shop for better prices on insurance and utilities
Utilities and insurance have a way of slipping into the background whenever we think about spending.
That’s not good. On average, a household spends $604 on insurance (excluding car insurance), and somewhere between $200-$500 monthly on utilities. (source)
The problem is that keeping track of all the different bills takes a lot of work.
The solution is this:
Once every year, sit down and go through every single insurance and utility bill. List all the different plans/subscriptions/policies you have, and look for better alternatives.
After this once-a-year deep dive into it, just automate the payments and forget about it. Well, don’t forget about it completely; you should keep an eye on the bills in case the prices have been bumped or something, but you get what I mean.
Some general tips to save money on insurance:
- Bundle your policies. On average, households save up to 16% on their total insurance spending by bundling it together with one provider. (source)
- Update your life insurance. Did you buy your life insurance 20 years ago? If so, your needs in terms of coverage have likely changed. Some money might be saved here!
- Be healthier. Quitting tobacco and dropping some weight might save you hundreds every year on insurance, according to HavenLife. Especially if you stop smoking because you then qualify for a significantly cheaper pension.
- Improve your credit score. Improving your credit score might give you lower premiums on some insurances.
By completing the four steps above, you can save at least 20% on insurance in general.
Some general tips to save money on utilities:
- Replace old appliances. Did you know that a new washing machine might use up to 25% less energy and 75% less water per wash? Stuff like that saves a lot of money and is great for the environment.
- Use a programmable thermostat. You don’t need to keep the same temperature 24 hours a day. A programmable thermostat enables you to turn down the heat at night automatically, or when you’re at work. This usually saves up to 10%-20% per year on heating/cooling, according to Evergy.gov
- Seal air leaks around doors and windows. This makes controlling the temperature in your apartment or house much more efficient. As you know, temperature control is a huge part of your electricity consumption and is, therefore, an important thing to keep in check.
Suggested reading: How to Save $30,000 In One Year
#4 Save money on food by learning to cook
Eating out is sometimes worth it. It’s a great way to get together with friends, family and colleagues.
However, there is no excuse for eating out just because you want to eat out.
The average American household eats out 5.9 times per week, spending roughly $3,500 a year, or $300 a month if you will. (source)
If you don’t have a particular reason to eat out, like celebrating a promotion, or a birthday, or meeting a friend you haven’t seen in a while, you should be in the kitchen making your own food. It’s both cheaper and healthier.
Now, don’t get me wrong. You shouldn’t spend three years studying the science of food and become a master chef. You only need to learn a minimum of 3-5 different meals that you can cycle through.
I’ve found that having a rather small list of meals makes it much easier to cook my own food consistently. I don’t have to look up recipes, wonder what ingredients I need, or risk failing to make the meal altogether. I can just shut my brain off and listen to a podcast or some music.
Having this list also makes grocery shopping much more effective and cheap; I know exactly what I need to get, and in what quantities. This saves me roughly $100-$200 a month.
Here’s my concrete suggestion to save money on food:
Learn to cook a minimum of 3-5 meals. Make sure they are healthy and easy to make. This will enable you to limit eating out, saving $100-$200 a month. In addition, the rather small list makes grocery shopping more effective and cheap, saving an additional $100-$150.
How Much You Can Expect To Save From This:
Before calculating how much we’re saving on the four steps listed above, let me say this:
I will work with the average numbers and my personal experience. Your personal savings will vary, and be dependent on your current spending and willingness to be frugal.
Alright, below you see a table showing how much the average household spends on the different items I’ve talked about today:
| Item | Monthly Expense |
|---|---|
| Housing (including utilities) | $1,784 |
| Transportation | $819 |
| Insurance | $604 |
| Food | $610 |
| TOTAL: | $3,817 |
The suggested savings on each step were as follows:
- Step 2: Move closer to work in a cheaper apartment or house. The estimated savings are 30% on housing and 50% on transportation.
- Step 3: Going through all insurance policies once per year, bundling them together, and improving health and credit score. The estimated savings on insurance is 20%.
- Step 4: Learning to cook a minimum of 3-5 meals to limit eating out and make grocery shopping more effective. The estimated saving on food is 35%.
Here’s the same table as above, but with the new numbers:
| Item | Monthly Expense |
|---|---|
| Housing (Cut by 30%) | $1,248 |
| Transportation (Cut by 50%) | $409 |
| Insurance (Cut by 20%) | $483 |
| Food (Cut by 35%) | $396 |
| TOTAL: | $2,536 |
| Money Saved: | $1,281 |
The average household will save $1,281 per month by completing the four steps laid out in this article.
The best part is that you can keep your small luxuries. You don’t have to cancel Netflix or Disney+. You can continue grabbing the occasional coffee at Starbucks. You can keep working out at the gym, grabbing a drink now and then, or go bowling with the boys on Mondays.
What I’m trying to say is this:
As long as you cut down on the big stuff, you can keep spending on the small stuff.
Suggested reading: Saving vs Investing During Inflation: What’s Best?
Conclusion: The Four Steps To Save A Lot Of Money Fast
- Calculate your finances. You need to know where you are to know where to go.
- Move closer to work into a cheaper apartment or house. This cuts down on the two largest expenses in a permanent way.
- Go through your insurance policies and utility deals once a year. Try to bundle insurance together, live more healthily and improve your credit score.
- Learn to cook a minimum of 3-5 meals. This will make it easier to cook at home, limiting how much you eat out. IN addition, it makes grocery shopping more effective.
An average American household doing this can expect to save roughly $1,250 monthly. That’s $15,000 a year.
Hope you found this helpful!
– Oskar