by Amy Hite

Created on: October 20, 2009   Last Updated: October 21, 2009

During tough economic times, many people look for ways to reduce expenses. The "keeping up with the Joneses" culture in society can make it difficult to decide how and where to cut back. If you are serious about making a change however, it is very possible to take a rational step-by-step approach to eliminating unnecessary expenses.

Step 1: Create a spreadsheet.

Find every bill you receive each month and document it in a spreadsheet format. Be sure to remember your on-line bills, as well as those that you might not pay per month, but still need to calculate into monthly expenses so as to be sure you will have enough to pay them when they are due. For example, you might pay $200 in car insurance every other month; therefore, you will need to be sure you budget at least $100 towards that bill every month. Also, be sure to include things you spend that do not correspond to a bill, like groceries and gas for your car. At the bottom of your spreadsheet, include a space to insert your monthly income. Subtract your total expenses from your total income so you can see what your surplus or deficit is each month.

Step 2: Evaluate the "big stuff" first.

Define the "big stuff" as the things that cost you the most each month. Usually these things are your mortgage or rent and car payments. If you own other high ticket items, you would include those here as well. Look at these items first because they are where you can potentially make the biggest initial impact. If you own your home, can you refinance to lower your payment? If not, are you eligible for loan modification due to a recent hardship? Take a look at government programs and see if you qualify. If it comes down to it, could you sell your house? If you rent, should you move to a different apartment that has cheaper rent? Take a look at your car. Consider selling it and buying a "clunker." Remember, these things are all part of the evaluation process. You might find that you cannot live without your limited edition SUV, and that decision is yours to make.

Step 3: Reduce and negotiate.

Now that the "big stuff" is decided, the other bills can be addressed one by one. As you evaluate each monthly expense, make notes on which ones are fixed and which could be reduced. For example, can you shop around and find a cheaper rate for car insurance? Do you have credit cards? If so, call each credit card company and see if you can reduce your interest rate. Take a look at your grocery bill. Are you a brand shopper? Try going

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