The first step in reducing monthly expenses is to look at the last three months of your expenses and break it out into categories of spending. You can now use a number of budget tracking websites to help you do this very easily, such as Mint, Wesabe, and JustThrive. These sites let you import financial data from your bank accounts to make things easy.

Next, figure out your main budget categories and where you can cut back spending in each of them.

Cut Necessary Spending You Can Micromanage

The easiest category to chip away at is necessary spending that you control on a purchase by purchase basis. Think grocery shopping. You can easily swap an expensive item (steak) for a cheaper item (ground beef), or cut out items all together (ice cream).  The same thing goes for clothing purchases. To some extent, switching retail environments can help here. For instance, shop at Old Navy instead of the Gap, or for serious saving, shop at garage sales and used clothing stores. Shop at outlet malls instead of trendy malls.

If you commute, consider alternatives, like biking to work, or ride sharing. Or even telecommuting.

Cut Contracted Spending

What is harder is to cut are budget areas where you have contracts in place, like child care, lawn care, phone, cable, etc. Some contracted spending you have to have, like utility bills. The way to cut these, as you no doubt know, is to try and use less energy. Replace light bulbs with more efficient compact fluorescents. Turn of lights when leaving rooms. Wash clothes with cold water instead of hot. Turn down the thermostat. And so on.

Some contracts you can reduce. For example, you can reduce the number of channels you get on a cable or satellite dish to bring down that monthly bill. If you use a lawn care service, or other types of services, ask if there is a lower service level. Maybe you are at the Gold standard level where Bronze will do.  You can also eliminate some contracts all together, like TV and lawn service. Some you may not be able to eliminate, like child care.

One trick is to pay contracted or monthly bills more frequently. You might not save money, but you are less likely to miss a bill payment altogether or bounce a check (which can cost you money). On something like car insurance, where odds are you break up a sixth month bill into monthly bills, you are paying a convenience fee or interest. If you can pay the whole bill in one lump, you will save on those fees.  Finally, it is also possible to negotiate a lower rate all together. Or switch to a new provider with a lower rate. Often, when it comes down to the wire and you threaten to leave a provider to get a lower rate, your current provider manages to find a lower price for you, either by just cutting the price, or adjusting what you get for what you pay.

Find out if you save money by bundling some services such as phone, cable, and Internet. Or car insurance and home owners or renters insurance.

Cut Purely Discretionary Spending

You might be surprised to see when you break out your spending how much of it goes towards Wants instead of Needs.  A want is anything you can live without–and don’t say “I can’t live without my $5 Starbucks Grande Frappucinno every day.  One way to reduce discretionary spending is to simply keep less cash in your wallet. Or avoid whipping out your credit card for spontaneous purchases.

If you really need that vacation this summer–and who doesn’t–plan ahead for ways you can have fun that don’t cost a lot of money. Hike instead of renting expensive equipment like jet skis. Buy snacks or even meals at the grocery store instead eating every meal at restaurants. Or choose a destination where you can stay with friends or family instead of a hotel.

Cut out Savings…Not

We don’t recommend this. In fact, if you make cuts in all other areas and you aren’t saving for your retirement, or school, or other worthy and important goals, shift some of your budget cutting saving into actual savings.