Expenses in the world of business are a fact of life, but sometimes they can creep up on us, eating into our profits and damaging the growth of our business. As a solo-preneur or small business owner, you may not be able to cut down on your key business expenses but you can control your own spending. So here are some simple ways that you can cut back on your personal expenses.
Recognize where you’re spending
Before you can effectively cut down on your expenses, you’ll need to first recognize where it is you are spending your money. You should be keeping a record of all business expenses for tax purposes, so take a look at where your expenses are adding up, and make a note of regular expenses that you could cut back on. If you haven’t been keeping proper records or your expenses, or want to cut down on some personal expenses that may not be entirely business-related, then spend as normal for one month but write down everything you spend during the month, whether it be $1 on a chocolate bar or $500 on a hotel room. Write everything down and then use this as a basis from which to form your analysis.
It’s often easier to see large expenses and to focus on cutting back in those areas, but more often than not it’s actually the smaller expenses that tend to add up over the course of the year and cutting out a small, simple expense such as your morning coffee can make as much difference over the course of the year as changing your travel plans or downgrading your gym membership.
Top tip Many banking apps now let you filter your statement by transaction, why not type in some of the names of the places you think you visit frequently, such as Starbucks and you may be shocked by how much you spend there on a monthly basis.
Work out what’s a luxury and what’s a necessity
So you need to travel to Paris for a business convention, ok, but do you really need to book a first-class ticket? There will be times during the year that a little luxury may be called for, after all, we all deserve a treat every now and then, but if you keep opting for luxury options when a more cost appropriate option would have sufficed, then you’re just eating into your business profits and ultimately harming the growth of your business. We’re not saying you should always take the cheapest option available as sometimes a little upgrade to business class can provide you with better wifi, a chance to work in the lounge, and will leave you more refreshed for your business convention ahead, but unnecessary luxuries should be cut out. Some luxury things to consider swapping include:
Expensive hotel rooms for AirBnB’s
First Class tickets for Business or Economy alternatives
Taxis for public transport
Top tip Before booking a trip or upgrading your travel, look at what you could save by choosing a cheaper option and then allow yourself to visualize what that money could do to help you grow your business.
Look at your direct debits and subscriptions
It’s easier to recognize where we are overspending when we physically hand over cash or a card, which makes direct debits and subscription services difficult to keep track of. Take a look at the payments that come out of your account regularly; are there any you no longer use? Have some of them increased in price without you even realizing it? Don’t let direct debits and subscription charges run away with you, challenge price increases, cancel services you no longer use and make sure you’re always getting the best deal.
One business service that many business owners continually overpay for is their business mobile phone. We tend to be more aware of price changes in our personal lives, but for some reason allow our business contracts to continue unchallenged. Be sure to assess whether you are using your entire business phone allowance and if you’re not, then consider changing supplier or tariff. Use a network review site to help you compare all of the different UK mobile networks side-by-side; if you could save your company money elsewhere.
Top tip: Put a reminder in your diary to look into your direct debits and subscription services once every quarter. This will remind you to screen them for any changes and to cancel any you no longer use before they rack up too much.
Change your habits
Quite often, many of the expenses that we need to cut down on involves a change in our habits. For example, making a coffee at home rather than buying one on-route to work, or making your own lunch at home rather than buying one every day. These are just two examples of small daily habits that soon add up to become costly annual expenses. If you were to eat lunch out of the office every day costing you just $5 per day, that makes $25 a week and $1300 over the course of a year. So take a look at your daily habits, have you become lazy? Could you change your habits to save yourself some money?
Top tip Don’t try breaking all of your habits at once as this is a recipe for relapse. Instead, focus on breaking one habit at a time and build up the habits you are breaking slowly. Try breaking one per week.
Try a no spending week
Of course, there will be certain business expenses that simply must happen to keep your business running but to help you evaluate your overall spending, try to have a no spending week for personal expenses such as eating out, shopping, transportation, and leisure. By trying a no-spending week, you will begin to notice just how often you reach for your credit card and how often you justify spending to yourself.
Over the course of the week, try to evaluate the areas where not-spending money has been positive and where it has been negative, this will help you to prioritize your spending and you may even end up cutting back some of the less important expenses altogether when you realize how little you miss them.
Top tip: It’s harder to spend money if you leave your wallet at home. Leave your cards at home and just take out some emergency cash in case you find yourself in an emergency situation.
Pay for things with cash only
Have you ever wondered why it seems to be so much easier to overspend on a card than it is with cash? Well, the answer lies in our psychology.
When we pay for something using cash money our brain recognizes the transaction, sees the money handed over, and notices that we now have less cash in our possession than we did before. Using a card, on the other hand, does not spark this recognition but instead hides the transaction, in essence hiding the fact that we have spent money from ourselves.
Banking apps have gotten better at updating our balances more frequently and some even provide push-notifications after every transaction, but the most effective way to remain conscious of our spending and to ensure that our brain recognizes each spending transaction is to pay using cash money. So why not try taking out a set amount of cash for the week and sticking to that as your budget? You may find it much easier to keep track of your expenses.
Top tip: After every cash transaction, make yourself count the money you have left - this may seem childish but it will help you to realize what you have left to spend for the week and will stop you from unexpectedly running out of money.
Keep profit at the forefront of your mind
Let’s face it, cutting back on expenses can be hard, especially when some of them such as your morning coffee, your takeout lunches, and your little luxuries maybe things that bring you a lot of joy. For some people, removing these things from their life isn’t going to be easy, which is why you need to keep your business at the forefront of your mind.
Write down exactly why it is you want to cut back on your expenses - are you struggling to make a profit? Do you think it’s your spending habits that are hindering your business? Or are you worried about a tax investigation? Whatever your reason is, write it down and then keep it at the forefront of your mind. Any time you’re struggling or are thinking of throwing in the towel, then return to the reason why you wanted to cut back on your expenses in the first place.
Top tip: Some people find that placing a sticker or little note to themselves on their credit or debit card can help to prompt them to think of their reason why every time they use them. Why not try this technique or pop a note to yourself in your purse?
