1. Clarify Your Income and Expenses
You can use basic budgeting and frugal ideas to reduce your monthly expenses and reach your financial goals. First, list all sources of gross income. Second, list all of your fixed expenses and subtract them from your gross income. Fixed expenses include savings, credit and loan payments, insurance payments, mortgage or rent, and taxes. The amount left is what you have for variable expenses. Variable expenses, the easiest to reduce, include groceries, clothing, auto expenses, eating out, and entertainment.
2. Reduce Fixed Expenses
Look at all of your bills to see how you can reduce them. Do you need caller id, HBO, and 4 monthly magazines that no one is reading? One at a time, cancel extras you don't need or use. Investigate insurance costs, credit card interest rates, long distance charges, etc. We now save $32 per month after switching car insurance companies. Don't overwhelm yourself, pick one area a month to look into and change whatever is possible.
3. Track Your Spending
Use a small notebook, your checkbook register or financial software to track all of your expenditures. I find it easier to use a small notebook and the check register, because I can carry it with me and stay current. Financial software, like Quicken or Money 99, does an excellent job and will even show your spending graphically. Our biggest problem area was food shopping. So I spent many hours researching how to grocery shop more economically, and we now spend about half as much as we were.
4. Analyze Your Spending
After tracking all of your spending habits for at least a month, look to see where you can reduce your spending. Is your long distance phone bill too high? You could change to a cheaper long distance provider, reduce the number and length of your calls, send emails or write instead. Do you spend too much on lunches out? You could pack you lunch -- even once or twice a week helps. Do you spend too much on dinners out, especially after hard work days? You could freeze meals ahead and make it easy to pop dinner into the oven or microwave. For example, make a double batch of Sunday's spaghetti and thaw and reheat the second one on Friday night after a long rush hour.
5. How to Reduce
Is there an area that you would like to reduce, but don't know how? Look it up on the Internet. For example, you spent entirely too much on cosmetics recently. Do an online search for frugal or homemade cosmetics to find some innovative and fun ways to spend less in the future.
6. Reward Yourself
Frugality takes time and effort. Reward yourself for your progress, but not with financial rewards. For example, play soft music and spend the evening lying in bed reading a good book -- borrowed from the library, of course!