How to Reduce Cost of Living: Tips & Tricks

Written by Bradon MatthewsUpdated: 1st Oct 2021
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One of the first things you realize when you grow up is that life is expensive.

Having to pay for housing, food, clothes, transportation, and other necessities adds up quickly. On top of that, you probably want to have a bit of fun and enjoy yourself.

All of this can make it very hard to save and set yourself up for the kind of financial future you want. It can also make starting your own small businessor investing stressful or untenable.

Luckily, understanding your cost of living can go a long way towards helping you achieve financial freedom.

By setting a few simple rules in place, you can reduce your cost of living significantly without having to sacrifice your quality of life.

Understanding Cost of Living

Before we talk about how to reduce it, let’s explain what cost of living is.

Your cost of living refers to the amount of money it takes to maintain your current lifestyle. This includes necessary purchases, such as food, and frivolities, like a night out on the town.

Your cost of living is highly changeable because it takes into account so many factors. If you cut back in any area of your financial life, you’ll lower your cost of living.

The problem is most of us get used to living a certain way. We are hesitant to change because we like our quality of life.

Things don’t have to be so black and white, though. Being smart about reducing your cost of living will allow you to save money without making your quality of life significantly worse.

>> More: What Is Cost of Living? And How Is it Calculated?

How to Reduce Your Cost of Living

Below are a few ways to reduce your cost of living without reducing your happiness.

You don’t have to follow all of them, but picking a few that work for you and incorporating them can greatly impact your finances.

#1. Follow a Strict Budget

One of the biggest driving factors of your cost of living is how you budget.

People with high costs of living tend to be very loose with their budgets. Unless you are ultra-wealthy, this is a recipe for disaster in the long run.

By contrast, setting a reasonable budget can lower your cost of living tremendously. We recommend following the 50/30/20 Budgeting Rule.

Not only will setting a budget help you stay within your financial limits, but it will also teach you to be more mindful about your purchases. You may find you spend far more than you realize on things that don’t enhance your life.

When setting your budget, it’s a good idea to start with your savings goal and work backward. How much do you want to put away each month?

Once you have that number, subtract it from your monthly income. Then remove your necessary purchases and monthly bills.

The number left over should give you your monthly budget for non-necessary purchases. Sticking to that number will almost certainly help you spend less than you do now.

#2. Download a Budgeting App

Setting and monitoring your own budget can be challenging.

Whether you don’t know how to analyze your monthly income or expenses, or you just don’t like having to log all your purchases, budgeting apps can make your life easier.

There is a wide range of budgeting apps on the market, each of which offers unique features. Many connect directly to your accounts and automatically log your purchases.

If you struggle with setting or sticking to a budget, we strongly urge you to look into these apps. Budgeting is one of the most effective ways to lower your cost of living. Take advantage of it.

>> More: Explore the Best Budgeting Apps

#3. Pay Off Your Debt

Debt has a big role to play in your cost of living. Having outstanding debt means you’re constantly having to put money aside to make the payments.

What’s more, the interest you wind up paying makes the debt even more expensive.

Getting rid of your debt can free up a significant amount of money. You can then use this money to save without having to change your lifestyle.

If you can, you should put as much money into your payments as possible. We know it isn’t as exciting as buying something new but getting rid of debt can completely change your financial picture.

#4. Stop Dining Out

Eating out is great. It’s easy, convenient, and tasty. It’s also one of the worst things you can do for your financial well-being.

Eating at home can cut your food bill in half. All that extra money is then freed up for saving.

Yes, eating at home requires some changes to your lifestyle. You’ll have to learn to cook if you don’t already know, and you’ll have to set aside time to do so.

The benefits far outweigh the downsides, though. You can meal prep in one day with an easy recipe and save it for the rest of the week.

Overall, you’re sacrificing a few hours for a potentially huge leg-up on your finances. Cut back on the eating out, and your future self will thank you.

#5. Move to a Cheaper City

For those who are deeply attached to their routines or purchases, one of the best choices for lowering cost of living is to reallocate.

Moving to a cheaper city can have a profound impact on your financial health.

Your monthly housing bill, one of the biggest contributors to cost of living, will drop. That alone will free up a lot of money without you having to change your habits.

Additionally, the goods you buy in a cheaper city will probably also be cheaper. If you can keep your same income, this relocation can be one of the easiest ways to free up a lot of your money without changing much about your day-to-day routine.

>> More: Best House Hunting Apps

#6. Carpool to Work

Many people don’t consider how much it costs to commute to work each day. Gas is expensive, and if you have a long drive, you might be losing more than you realize.

An easy solution to this problem is to carpool to work.

Driving with someone else and splitting the bill is effectively halving your daily cost of transport. While that might not seem like much, it can be significant over the course of a year.

#7. Move Into a Smaller House or Apartment

If you have more house than you need, you may want to consider downsizing to reduce your cost of living.

Housing is one of the biggest contributors to your monthly bills. Moving into a smaller place can save you hundreds of dollars a month.

Of course, this isn’t always feasible. Some people may truly need larger homes. But if you have an empty room that deep down you know you don’t need, it’s probably for the best that you move into somewhere smaller.

#8. Find a Roommate

Another housing-related way to reduce your cost of living is to find a roommate.

Having a roommate can cut your housing bill in half. Considering that housing can be half of your overall income, it isn’t hard to see why this is a smart move.

Think about taking half your rent each month and putting it in savings. It adds up quickly.

Finding a roommate can be stressful, but if you take your time and make sure the person is a good fit for your lifestyle, it can be an easy and fun way to reduce your cost of living.

#9. Reduce Your Energy Consumption

The monthly energy bill is another often overlooked contributor to your cost of living. Depending on your living situation, running the AC may be hurting your bank account quite a bit.

Cutting back on the amount you use electronics and being strategic about running the heat in the winter can help you stick to your budget.

Don’t ignore the little things. They can add up over time.

#10. Use Cash-Back Apps

Cash-back apps offer users rewards for the purchases they are already making. This makes cash-back apps one of the few ways to lower your cost of living without changing a thing about your lifestyle.

There are a wide variety of cash-back apps on the market, each of which offers unique features. We recommend taking your time and learning about them before deciding which to use.

#11. Buy Used Items Instead of New

Buying new items can be very exciting, but it’s rarely necessary. Next time you need a shirt, try shopping from second-hand stores.

You may be surprised how easy it can be to find the things you need used, and the price difference can be monumental.

#12. Stop Leasing or Financing a Car

Like other monthly bills, leasing or financing a car has a big impact on your monthly budget.

If you’re leasing, your best bet is to stop as soon as possible and buy a car. Leases are inevitably wasted money, and a leased car will never help you reduce your cost of living.

If you’re financing your car, pay it off as soon as you can. Financing plans cost you by charging interest. Make it a goal to pay the car off and avoid buying cars that are too expensive in the future.

Is It Easy to Reduce Cost of Living Expenses?

The ease with which you can reduce your cost of living depends on several factors.

If you have lots of income, it can be easier to reduce your cost of living because you can afford to pay off debts and buy things outright.

The biggest factor influencing how easy it is, though, is your financial goal.

Making a minor change to your cost of living is easy. Skipping one coffee a week will technically reduce your cost of living.

It can be hard to make major changes, though. You may have to move or pay off overhanging debt. You may have to stop eating out.

Regardless, doing what you can to lower your cost of living is almost always worth it.

Bottom Line: How to Reduce Cost of Living Expenses

Your cost-of-living expenses are easy to manipulate. That doesn’t mean it isn’t hard to stick to your budget.

While there will always be some degree of sacrifice involved, you can lower your cost of living expenses relatively pain-free by making a few smart changes to your life.

Think about the things you truly need to be happy. Let go of some of the expenses that you don’t need. The financial freedom you gain will be worth it in the end.

Bradon Matthews
Bradon Matthews

Bradon Mathews is a personal finance writer & product analyst with a breadth of experience. He enjoys analyzing market information and trends to help you make sense of the complex and ever-changing world of finance. His passion is providing practical advice so you can feel more confident managing your money. Bradon attended Colorado State University where he studied Philosophy.