Here you will learn how to implement a new money management strategy and cut your monthly spending by up to 20%.
Your money never seems to stretch far enough, does it? You need to cut your monthly bills but want to avoid the pain of strict budgeting.
I know the feeling.
There was a time when the month seemed to outlast our monthly income by an eternity. It’s during this period that we accumulated debt.
I paid little attention to my payslips or my bank balance, and I had no idea what things cost.
You would be justified to think that’s irresponsible or even foolish.
Perhaps. But more than anything else, it was fear.
When I finally mustered up the courage to look, we were in so much debt that fear became irrelevant: it was either do something about it or end up in bankruptcy court.
I was only grateful that debtor’s prisons no longer exist; otherwise, my son would have been growing up like Little Dorrit.
So, I decided to act.
I read. Studied. Analysed. Crunched numbers.
I applied my knowledge of chess (despite having forgotten much about the game) to experiment with money management strategies. More importantly, I implemented these strategies.
- We cut our monthly bills by managing our money better; and
- We increased the amount of money we had to manage.
Today, I’ll tell you about how we achieved the first point.
Let Me Show You How We Cut Our Monthly Bills by 20% by Using the ERR Money Management Strategy.
What is the ERR Money Management Strategy?
I developed and used this strategy to get out of debt.
I still use it, like a gospel, because I understand that winning the game of wealth depends on how much you keep, not how much you earn.
The ERR money management strategy focuses on three things:
- Eliminate (waste);
- Replace (activities and the methods you perform these); and
- Reduce (consumption).
Of course, implementing the strategy assumes that you already have a budget in place.
If you’re serious about cutting your monthly bills and winning the game of wealth – whether you’re paying off debt or building capital and investing – you need a budget.
If you still don’t have one, here is how to create a budget. A budget doesn’t have to be a rigid, restricting corset; it can be as comfortable as your favourite pair of shoes.
If you don’t already have a budget, pause here, create one, and then return to this post. You can use the TMP Monthly Budget Planner to help you.
Once you have a proper budget, you’ll be aware of:
- Exactly how much your income is (weekly, monthly, and yearly);
- How much you spend (it’s crucial to know this down to the last pound; no approximations); and
- What you spend your money on.
Having this information is a great start but not enough to reach your financial goals. You need to use this data to make decisions about what to eliminate, what to replace, and what to reduce in your monthly spending.
Let’s dive deeper into the ERR strategy.
1. Eliminate (waste)
Most of us are guilty of wasting quite a bit. We were! We used to waste over £2,000 every month; that’s £24,000 per year. No wonder we were in debt.
Chances are, you too are wasting a significant chunk of your money.
The good news is that you have a budget now; scrutinise it for waste.
Based on my experience, up to 80% of waste in household budgets is on
- Insurance; and
I won’t go into detail here, but we managed to significantly reduce wastage in these areas.
2. Replace activities and routines
To make your money stretch even further, the next step is to find items on your expenses list that you’d like to keep doing but could potentially change the way you do them.
This is where the real fun begins. Because ‘replacement’ isn’t just about being frugal. It’s about becoming a ‘frugal artist’.
We continued to enjoy many of our favourite activities while in debt; we just learned to do them differently. Here are a few examples:
- We began baking our own bread; it’s always fresh, I know exactly what’s in it, it’s a relaxing activity, and it costs a fraction of what we would pay for inferior store-bought bread. It’s a no-brainer.
- We opted to entertain more at home rather than dine out at restaurants. It’s cheaper, allows for a deeper conversation with friends, and can include your children. You can even add a little spice to your dinner parties to lighten the mood: I once had a bet with our friends that I could serve a three-course French menu for £1.50 per person. I won!
- We continued our skiing trips. However, we would book a cheap flight, stay at a friend’s house, and I’d buy half-price ski passes at midday. This was also character-building.
- I maintained my exclusive gym membership by bartering it for writing and business consulting services.
I could extend the list, but you get the idea. The best part about learning to ‘replace’? The skills you learn stay with you long after you’ve paid off your debt because it’s fun and brings a great sense of achievement.
3. Reduce consumption
We all tend to over-consume. Yes, you need clothes, I agree.
You might even convince me that you need designer labels in your wardrobe.
But do you really need fifteen outfits? Do you need forty pairs of shoes or twenty handbags?
I love my shoes and handbags as much as the next person. I used to own forty pairs of shoes. Then I donated 38 pairs and bought three new ones.
You’ve guessed it! Now I have five pairs of high-quality shoes, running shoes included.
When you examine your lifestyle and routines, you’ll likely find that you over-consume in many areas.
I’m far from a minimalist, yet I’ve managed to reduce consumption in almost all aspects of my life. It’s better for me, my bank account, and the environment. It also cuts my bills!
Try it. It’s incredibly liberating.
All right, I’ve written enough.
I’m off to apply the ERR money management strategy to our budget again.
I’m prepared to bet that I’ll shave off between 15% and 20% from our monthly spending yet again (yes, I haven’t done this for about a year).
Would you like to play?
We can implement the ERR money management strategy together over the next week. I’ll update you about my progress, and you can share your experience in the comments.