Over the past few years, my husband and I have been in a gradual financial downsizing process, necessitated by our desire for me to be home with our kids. When our first baby was about 10 months old, I started a home-based business to supplement our income, and one year later, I left my full-time job. We have since had baby No. 2 and my husband has started graduate school. With all of the ups and downs of life, we wanted to streamline our spending as much as possible. It is definitely still a work in progress, but we have found some things that work for us.
The main purpose of financial downsizing for us was reducing debt, and there are only two ways to do that: reduce your spending or increase your income. We will start with five main areas for reducing expenses:
Prior to having kids, my hubby and I got into the habit of eating out often. We both worked full time and eating out was convenient. When it came time to cutback, though, this is the first place we looked. You can easily save several hundred dollars a month by cooking at home and packing a lunch instead of eating out for lunch and/or dinner. You can also save a lot of money on food and household items by using coupons for things that you were already going to buy
Our satellite TV bill was over $90 a month. We cut out satellite and switched to Netflix and Hulu, which saved us about $70 a month. Hulu generally has current shows available the day after they air, so we still get to watch everything that we want. We also got Sling TV for football season, which is an online streaming option that gives you access to many premium channels for around $30 a month, with no contract. For the few months that we use Sling TV, we still save $40 a month compared to what we paid for satellite.
Look at all the memberships you have and see which ones are not adding as much value to your life as you spend. Maybe you have a gym membership, a professional association membership, a few magazine subscriptions, and a “surprise thing that comes in a cute box for $10 a month” subscription. All of those little fees can add up to well over $100 or more per month. Cut out the ones that you do not need.
If you own a home and haven’t looked into refinancing to lower your payments, it may be worth it to do so. Depending on your loan amount, interest rate and credit, you could save hundreds or even thousands of dollars a year. While it is a bit more drastic, you may also consider moving to a smaller or less expensive house.
5. Going to One Car
If it is feasible for your family, you may also consider going down to one car. While it would take some adjusting, this would save on gas, insurance and car repairs. You would also have a nice chunk of money from selling the other car to put towards debt payments or savings.
The other way to reduce debt is to increase your income. While this is a bit more challenging than decreasing your expenses, it has been a huge help for my family. Here are some ideas on how to do it:
1. Start a Home-Based Business
This has been huge for us. When I was still working full time, the income from my home-based business went straight to paying off my husband’s truck. We paid off two years of loan payments in nine months and immediately freed up $300 a month in car payments. We then put the money toward credit cards and paid off almost $10,000 in debt, saving several hundred dollars in interest. There are many home-based businesses to choose from, but you want to make sure to do your research and pick one that pays well and does not require you to tie up your resources (and all your storage space) in inventory. You should also look for one that is flexible enough to be worked alongside your job (if applicable) and allows time for family and other activities.
2. Sell Unused Items
While this is not a long-term solution, you can downsize by selling items that you aren’t using. You might do this online or through a yard sale. If you really need to pay down debt, this can give you a good jumpstart.
While financial downsizing may feel uncomfortable in the short term, it will set you up for a much better financial future in the long run.
3. Offer Services
Think about what services you can provide that other people need. Maybe it is occasional child care, elder care, cutting grass, running errands, or even writing blog posts. All of these are things that people are willing to pay for. Offer your services as often as you would like depending on your need.
By doing some or all of these things, you will be saving (and earning) money that you can put toward paying off credit cards, car payments, student loans and any other debt you may have. When you pay off debt, that frees up all the money that you have been spending on monthly payments and interest and allows you to save, plan for retirement, or just have fun!