Achieving financial independence (FI) is a long-term goal. Whether you’re just getting started on your FI journey or you’ve been working toward FI for years, you should always be looking for ways to improve your finances. After all, improving your finances by just 1% offers an awesome opportunity to grow wealth when you compound that improvement over years or decades.
One way to work toward improving your finances by 1% is finding, optimizing, and avoiding recurring expenses. Companies love recurring expenses because it helps them accurately forecast their future revenues. For the same reason, you should hate recurring expenses. They’re a drain on your budget month after month, especially when you don’t actually use the service or product.
Of course, there are some recurring expenses you’ll probably want to keep. The internet is a valuable resource and some people love their cable TV. The key is finding all of your recurring expenses so you can optimize them.
After you make a list, you’ll want to analyze each expense to see if it is worth keeping. If it is, you’ll want to figure out how to optimize that expense. If it isn’t, you’ll want to cut that expense. Finally, you should do everything in your power to avoid unnecessary recurring expenses in the future. Here’s how to implement this process to make your finances at least 1% better.
Find and List Recurring Expenses
These should be relatively easy to find. Grab all of your bank statements and credit card statements for the last three months to look for recurring expenses. Look for things like gym memberships, cable bills, lawn service bills, online subscription bills, and other items that show up at the same time each month on your bank or credit card statements. While rare, there are some recurring expenses you may have to pay in cash. These should be fairly obvious as you have to go pay them each month.
As you find each recurring expense, write down the name of the vendor, what the recurring expense offers, the cost of the recurring expense, and the date it needs to be paid each month.
Cut and Optimize Recurring Expenses
Now that you have a list, it’s time to get busy. First, look through the list and decide which recurring expenses you no longer need, there may be some that you didn’t even realize you were paying. Take action immediately and cancel those recurring expenses.
You may find expenses that you are paying, just because you like the option to use it, more than you actually use it. For example, the gym. Sure, you haven’t gone to the gym in a while, but you like the option of going. Plus, if you cancel your membership then you can’t go even if someday you decide you want to.
Cancel those. Trust me. You can always sign up again if you feel the need.
After you cut expenses that you no longer need, it’s time to optimize the expenses you want to keep. Look at each expense and see if you can reduce it in any way. Could you use a less expensive package? Could you switch providers to get a better deal?
If these ideas won’t work for you or you’re looking for even more savings, consider calling the providers to negotiate a lower rate. This typically works with expenses like cable, internet, and phone bills. That said, you can try to negotiate any recurring expense. The worst a company can say is no.
If you absolutely hate the idea of cutting and optimizing your recurring expenses yourself, there are services out there that can do it for you. However, you’ll have to pay for them in one form or another.
For instance, Trim allows you to hook up your financial accounts. Trim looks for recurring expenses and ways to optimize those expenses. They can cancel subscriptions and negotiate some bills to find you savings. While signing up for Trim is free, some of their services cost extra. If you want Trim to negotiate your bills for you, they’ll take 33% of your yearly savings.
Related: How To Save Money By Sharing Subscriptions, Memberships, And Services
Actually Save or Invest the Money You No Longer Spend
After you’ve cut and lowered your recurring expenses, find a way to save or invest the money that was originally being put toward those expenses. If you cut the expenses but then end up spending the money elsewhere, you haven’t accomplished anything.
The best way to do this is setting up automatic contributions to a savings or investment account. That way, the money can’t accidentally get used for another purpose.
Avoid Future Recurring Expenses
It’d be pretty sad if you slowly let your recurring expenses build up again after you’ve put in all the hard work to cut and optimize them. So, how can you avoid incurring additional recurring expenses in the future?
From now on, every time you hear the words “per month” train yourself to quickly figure out your annual cost. Even if are bad at math in your head, you can simply add a zero to the end for the cost of a 10-month subscription. For example, $9.99 a month doesn’t sound like much at all. But that equals nearly $120 a year. You might feel differently about the service when you have that larger number in your head.
Another way to reduce the odds of signing up for a new recurring expense is to clean up your email subscriptions. While subscribing to email lists doesn’t usually cost you money, they are typically being used as marketing materials.
If you’re on an email list, chances are whoever sends out that email list wants something from you. Most often, they want to sell you a product, or service and that can become a recurring expense.
You don’t have to unsubscribe from every marketing email, but make sure you unsubscribe from the ones that don’t offer you any value or the ones that tempt you to spend money you know you shouldn’t be spending.
Related: 20 Household Expenses You Can Cut Today To Save Money
Keep Your List of Recurring Expenses up to Date
Keep your list of recurring expenses up to date if you end up adding more in the future. The list can be a useful tool to help you keep these costs under control over the long-term. Chances are, some of your subscriptions will increase their rates over time. Revisit your list once per year and go through the process again to optimize your recurring expenses based on your current needs. This also gives you an opportunity renegotiate any rates that may have increased.
The key is to actually save or invest the reduction in expenses you gain from this exercise each year so you can reach FI even faster.
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