I have noticed a distinct habit that all really frugal people share—they never buy anything without questioning the purchase. This is a habit that all of us can learn from. You may never have questioned a lot of the things you spend money on. However, you probably have some expenses that you could reduce or even eliminate.
I group expenses into three categories: fixed necessities, variable necessities, and wants. Realizing which expenses are necessities and which are wants is really a big step. It might sound pretty simple, but most people have too wide a definition for necessity.
Here are my definitions for each of these categories:
Fixed Necessities: These expenses are things that are completely necessary and the amounts are very difficult to eliminate or reduce. Each month you must pay nearly the same amount for these expenses. Your home mortgage or rent would be included in this category, as well as a primary phone bill, health insurance, payments to debt, etc. Be careful when deciding which of your bills are really necessities. For instance, I would consider a primary phone a necessity, but a second phone line or a cell phone would be wants. Just because you label an item a fixed necessity, that does not mean it is impossible to reduce the expense. It is just a little more difficult than in some of the other categories. Go through these expenses and question each one individually. For example, take some time to think through how much you are spending on your health insurance. Do not take it for granted that each month you are paying X amount of dollars. Ask yourself questions like, “Is this really a good bargain?” Or, “Is there another company that would be less expensive and still give us what we need?” Even if you did some research when you originally purchased it, it is a good idea to reevaluate these big expenses once and a while to see if something has changed that would make another option better right now. Doing your research in this category can help you to make changes that will save you a lot of money.
Variable Necessities: These expenses are things that are completely necessary, but the amounts can change from month to month. You also have more control over how much you spend in each of these categories than you do with fixed necessities. Included are purchases like clothing, groceries, gas, electricity, or home maintenance. When you are trying to reduce expenses, this is a good area to start. Again, question everything. You do need to buy groceries, but there are likely some things that you buy that you don’t really need. And, there are probably a few other ways to trim a grocery budget by eating less meat, making more home-cooked meals, or using coupons.
Wants: We all know the definition of the word “wants.” Sometimes it is a little difficult to admit that some of our coveted things really are not necessities at all. Wants are things that we could go without if we had to. Some things that go into this category are entertainment, fast food or restaurants, an extra car, etc. Once you finally admit that going out for pizza every week is a want, it might be easy to see that you really can live without spending the money. After determining that a purchase is not a necessity, it doesn’t mean that you have to automatically let it go and do without. Instead, it can be empowering to be able to decide with a clear mind whether the want is really worth the money. Question every purchase, but especially question the wants.
Now that you realize how each of your expenses are categorize, you can have more control over your money. Realize too that each person will categorize their expenses in different ways, and that’s just fine. The main idea is to question where your money goes so that you can feel comfortable with how you are spending instead of just wondering where it went.