A friend recently told me that someone she knows is so cheap that he would not let her use paper towels at his place.  Yet at the same time he complains about not having enough money and lives in a very expensive apartment and drives a brand new car.  I also know some similar folks who seem to be tightfisted about everything except for one or two big expenses in their lives.  This is not necessarily a bad thing, but perhaps it is more efficient to save on that big expense instead of clawing onto paper towels.

First, I think everyone should be aware what they spend the most money on each month.  This can be done by tracking your expenses for one month and ranking your expenses by amount.  Then you should go through the list from the top and try to reduce the largest expense first.  For most people the biggest monthly expense is probably housing, and that could be cut in many ways.  If you have a mortgage it is possible to refinance to a lower rate, or rent out a part of your home.  If you are renting it is possible to negotiate a rent reduction or simply move to a cheaper place.  Many people who refinanced their mortgages recently saved hundreds of dollars a month, and that is worth a lot of paper towels.

Another common large expense is transportation.  If you have an automobile you may have to pay a car loan, gas, tolls, and insurance fees.  It is possible to cut these expenses by trading into a cheaper car, negotiating your insurance fees, and driving less.  Next there are expenses such as food or credit card debt, and these areas can also be tackled as a group to get the most savings.

An important point to remember is that you should try to tackle your recurring expenses such as subscriptions and rent first because reducing these costs once will save you money every month.  For example, if you clip a coupon to save $1 on a certain item you would need to clip that coupon 12 times to save $12, but if you negotiated your credit card rate down 1% you would be reaping that benefit with every billing cycle and you could pay off your debt faster.    You save more on recurring expenses by doing the work just once.                                                                                                                                                              

I am definitely not discounting the fact that small savings such as 50 cent off coupons can add up to a big amount over time, but by tackling your largest recurring expenses first you will get the most savings for the  amount of time you put in.  Saving big on just one area of your life could give you a lot of breathing room in everything else.

What is your biggest expense?  Have you tried to reduce it?