The Wealth Wheel – Reduce your Expenses

I am so convinced that the Wealth Wheel is the solution to the world’s financial problems that I am spending an entire week here on my blog demonstrating how to put it into practice. Yesterday I broke down the first two steps – earning and saving – and today I will tackle the second part – reducing your expenses.

Wealth Wheel Step #2: Reduce Unnecessary Expenses


This is a subject that I talked a little about last week, but let’s look at it a little more in depth today.

I like to illustrate most people’s financial situation with a bathtub. But instead of water pouring in, it’s money. Each faucet is a source of cash flow. For most folks, there is only one faucet (their job) and the drain is wide open, leaving most of the money to flow out.

bathtub drain

So before adding more faucets (sources of cash flow) to your bathtub, you should probably close that drain as much as possible. In other words, reduce your expenses so that less of the money you make flows out each month.

There are some expenses that probably can’t be changed much, but you might be surprised how much you can reduce others just by giving them some thought. For example:

  • Can you move into a smaller house/apartment with lower rent?
  • Can you combine cable/TV/internet for a better rate?
  • Can you negotiate a lower interest rate on your credit card?
  • Do you really use that gym membership?
  • Can you wash your car yourself instead of taking it to a carwash?
  • Can you make your own coffee instead of going out to Starbuck’s?

I don’t want you to do anything that’s going to suck the joy out of life and make you into a miser. What I want is for you to close that drain plug as much as possible. As my good friend and CPA Warren Taryle always says: “It’s not how much money you make; it’s how much you keep that counts.” That means not spending dollars foolishly when you could put them to work for you instead.

Reducing your expenses is about keeping more of your hard-earned money so that you can buy some assets later on.

Tomorrow: Investing your money.

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