Updated on 03.26.11

You Need To Cut Your Spending. It Sounds Painful. Now What?

Trent Hamm

You’ve realized (finally) that you’re in a precarious financial situation. You’re spending more than you earn – sometimes quite a bit more. You’ve racked up a fair amount of debt. Now, you’re seeing that some changes are going to have to happen in your life, but those changes sound utterly painful.

What do you do?

Getting to Zero
The most vital thing that you must do in this situation is “get to zero.” What do I mean by that? Getting to zero means that you’re trimming your spending enough that your income matches your spending. If you bring home $2,000 a month, you can spend only $2,000 a month.

In order to make this number, I usually encourage people to look for big changes – single moves that can save them a bunch of money each month. Some options include eliminating cable, eliminating a telephone landline, moving into a smaller apartment, downgrading to a less-expensive car, bundling your insurance, refinancing your mortgage, or renegotiating your credit card interest rates. Almost everyone is capable of making at least one of these changes, and such a change can make a huge difference in your month-to-month spending.

Sometimes, though, making one or two big changes isn’t enough. The next step is to focus on what I call “one-off changes.”

One-Off Changes
These changes revolve around activities you can do once to either bring in a quick money spike (which you would then apply to paying off a debt) or to lower a bill for the foreseeable future.

Some options here include cleaning out your closet and selling off unwanted items, having a yard sale, selling off the contents of a collection on eBay, installing a programmable thermostat, replacing light bulbs with more energy-efficient ones, air sealing your home, and/or putting your home electronics on a more energy-efficient plug setup (with the devices set to a switch or to a “master” outlet that cuts power to the other devices when the master one isn’t in use).

The one-off options that produce a money spike can be applied toward your debts, preferably the smallest debt. Ideally, you’ll be able to pay off at least one debt very quickly, which naturally reduces your monthly bills.

The next step is the part that people think of as being “painful” when it comes to making more frugal choices.

Behavioral Changes
These changes revolve around making better choices every day. We’re constantly inundated with choices that have some financial consequence, from the moment we get up until the moment we go to bed.

Should I grab a bite at home or grab something on the road for breakfast? Should we go out with coworkers for lunch? Should I stop at a store on the way home? Should I hit Starbucks? Should I order take-out tonight? Should I go out with my friends or stay home? Should I buy this neat item from Amazon or hold onto my cash? Should I prep some stuff for tomorrow or should I just turn on the whole home entertainment system and veg out?

Each one of those situations is a choice, and each one has a financially good and a financially bad option. Quite often, it seems as though the expensive option is easier or more fun, and it seems utterly painful to give them up. It is choices like this – where you’re made to give up something you enjoy – that gives frugality a bad name for some people.

If you’re in that boat, I encourage you to not give up big swaths of stuff. That approach will leave you feeling miserable and will inevitably lead to a big backlash against making changes. If your heart is not into a big change in your life, you’ll never make that big change.

Instead, I suggest a different route. Simply focus on the choice you have at hand. Don’t make big plans about giving up Starbucks only to find yourself resenting it later. Instead, whenever you have the option to stop at Starbucks, ask yourself whether you’d rather stop or you’d rather put yourself in better financial shape. If you choose to stop today because you could really use that giant cup of sweet coffee, then go for it and don’t think twice about it. On the other hand, view it as a personal success if you decide not to stop today.

Retaining What You Save
What I usually encourage people to do is, once they’ve reached zero and are spending only what they bring in, they start directly setting aside every dollar they save to get rid of their debts.

Let’s say you’ve decided not to stop at Starbucks. At that point, literally take a $5 bill out of your pocket and put it up, or log onto your online banking service and move $5 to another account. You can also just track this with a pocket notebook with a note that says “$5 – saved by no Starbucks.”

Over time, with every good choice you make, it’ll add up. “$10 – didn’t buy that book and hit library instead.” “$12 – made dinner at home and ate leftovers for lunch.” “$8 – used coupons at the store.” “$30 – stayed home with friends instead of going to a club.”

Remember, you’re looking at individual choices here. If a choice seems too hard, don’t make it. Do not let yourself get miserable because of frugality. What I found at this stage is that most of the time, making the financially sensible choice felt really good – better than what I was giving up. I was proud of it. However, there were certainly times when I didn’t want to make that good choice, and I found that if I forced myself to do it, I ended up resenting the whole thing. Don’t fall into that trap.

The perfect is always the enemy of the good. You’re far better off making three good financial choices and two ordinary ones and feeling really good about it than making five good financial choices and resenting your life so much that you eventually backslide out of everything.

As these numbers add up, make sure you’re putting that amount to good use. It is a bad idea to make these good moves, then look at your checking account balance, think that you’re rich, then spend it all on something silly. Instead, pour that money into improving your financial situation by paying off debts, building an emergency fund, saving for a down payment, and so on. Use a debt repayment plan and make sure your dollars are going toward something powerful.

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  1. Ginger says:

    My new behavioral change is using coupons/sales to cut down our grocery bill. Using sales I was able to cut our spending at the store down from $70-$80/week to $55-$60 a week but save the amount we need for a future we need to be under $50. I have started using coupon matchups online and shopping at different stores again. I am saving at least $5 every time I shop, just by using coupons.

  2. Brittany says:

    No new information here for a long-term reader, but a solid post never the less. This is a good post to pass along to people new to the frugality paradigm who haven’t quite had the full shift yet.

  3. Rafiki says:

    Solid advice here.

  4. Trent,

    You mention someone in a Getting-to-Zero situation may want to refinance their mortgage. Here, are you advocating a longer amortization term? And if so, at what point does the idea of stretching out your mortgage go from good to bad?


  5. Maureen says:

    Re: Programmable thermostats. Get Rich Slowly discussed this in detail on Mon. March 21st. Installing one often ends up costing people MORE! Check it out before you run out and spend money on one.

  6. MoneySheep says:

    I would include starting to manuever assets away from your name, just in case you have to file chapter 7.

  7. Shane says:

    “Do not let yourself get miserable because of frugality.”

    This is so true. I think that gradual behavioural changes are easier for people to deal with and give the most long term benefit.

    I especially like the idea of keeping track of all the “small” savings. That way end the end of the week or month you can see the big effect that the small changes have had.

  8. Robert says:

    @Derek #4: I’d say if your spending more than your bring home, stretching out your payments is probably better than the alternative (being driven into bankruptcy). Under ideal circumstances you would want the shortest loan period possible to reduce the interest you’ll pay, but when your monthly cashflow is net negative you are better off paying a lower amount each month if that will help you balance your budget.

    Just make sure that the refinanced loan includes no prepayment penalties. That way if/when you get to where you have extra money in your budget you can start to send extra with your mortgage payments.

    I bought a home last year and deliberately worked out my loan such that my payments are well below what I can afford. I usually send extra money with each monthly payment (directed at the principle, of course). If I have a month where I am tight (extra or unexpected bills for example) I can choose to send just the minimum and hold on to the several hundred extra that I normally send.

  9. Interested Reader says:

    Yeah JD over at GRS saw Lurker Carl’s comments about programmable theromostats, then went and did several hurs of research and wrote up an blog post about how it doesn’t necessarily save money.

    And yet Trent didn’t seem to catch that on his own blog.

  10. Cristina says:

    Actually, if you had read the thermostat article and its comments, you’d have learned that programmable thermostats DO save money when used correctly. The problem is that some people who use them feel like they saved so much money during the night or when they were away at work that they deserve to bump the temperature up or down during the rest of the day, in effect wiping their savings. Leave it alone, and it will save you money.

  11. marta says:

    Interested Reader, I am sure Trent mentioned JD’s post in one of his roundups.

    Yeah, there it is, from March 23:

    “Do Programmable Thermostats Really Save Money? They absolutely do if you don’t fuss with them. The problem is, people seem to fuss with them a lot. If a programmable thermostat doesn’t save you money, it’s not the thermostat’s fault.”

    I guess that’s why he still stands for them.

  12. JuliB says:

    The Chicago Tribune had a write-up last week about a family that made drastic changes for a month to see how much they could cut their spending without too much pain but still close to cold turkey. The figure was around $500, with food, clothing and entertainment being the biggest chunks. Food of course included stopping for coffee, buying snacks at work, etc.

    They ended the article by saying they felt better about being able to weather possible financial storms in the future.

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