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Reduce spending to the essentials.

Separate essential from discretionary spending

Knowing the difference between essential and discretionary spending is a good place to start looking to reduce expenses.

Discretionary spending

This refers to purchases that aren’t absolutely essential. This should be the first place to look if you need to trim costs.

What it includes:entertainment, dining out, clothing and personal care, vacations and home electronics.

Ways to save:Start by setting an annual budget for each discretionary category and stick with it. Set priorities by cutting out things you can live without (perhaps an upgraded cell phone, dinner out every Friday, a new winter coat every year, the super-deluxe cable package or a new TV) in favour of things you really want (for example, a vacation or time off work to return to school). Look for ways to continue to get what you want but for less: shop at discount stores, buy second-hand, eat at less expensive restaurants, join programs at your local community centre instead of using an expensive gym, book vacations during the low season or when tickets are on sale.

Essential costs

These expenses are just that: essential. You can’t eliminate them, but there may be ways to reduce the cost of some of them.

What they include:rent or mortgage, utilities, food, transportation to work or school, medical expenses, child care, insurance and taxes.

Ways to save:Make sure you’re getting all the tax breaks you’re eligible for. Follow energy-saving tips to reduce utility bills. Look for ways to cut grocery costs while still eating nutritiously. Take public transit instead of owning a car, and purchase a monthly pass or bulk tickets instead of paying cash.

Get more money-saving tips.

Understand the difference and tailor your budgeting strategy for each.

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