The most common spending problems are caused by a house that's too large, a car that's too luxurious or a credit-charged lifestyle that's too lavish for your income. Whatever your situation, here are some common ways that people can reduce monthly bills.

Eliminate trivial but needless costs.
Look first for small savings -- not because they'll end your budget problems, but simply because they're easy to find and take advantage of. For example, swear off mid-afternoon Danish or caffé latte. Shop for clothes and household furnishings only during sales. Keep your house warmer in summer and cooler in winter. Take on chores that you usually pay someone else to perform, such as mowing the lawn, shoveling snow or -- if you're mechanically inclined -- changing the oil. As we noted in Lesson 1, seemingly inconsequential savings do in fact add up. But they usually won't be enough, either, which is why you should also begin to ...

Reduce larger expenses.
These recommendations are decidedly more painful. If you smoke, for instance, quit. Don't buy season tickets to anything. Drop health club memberships; a pair of jogging shoes and a set of weights seldom cost as much as annual dues at a gym. Plan cheaper vacations. Trade in your luxury car or sport utility vehicle for something a lot cheaper to buy, fuel and maintain (we said this was painful). Re-think your living quarters and move to some place less expensive, if it's warranted.

Okay, on the assumption that those kinds of changes may be too wrenching, here are some other specific areas where many people can find savings:

Refinance your mortgage.
If new mortgages are costing at least two percentage points less than the rate you're paying, refinancing may save you significant dollars; check our refinancing calculator to be sure.

Cut your taxes.
Usually this means taking better advantage of itemized deductions, and it's a lot easier to do if you are either self-employed or have some income from work you do outside of a regular job. That opens up a range of new deductions -- from expenses for work-related items to a home office -- that are much harder to claim if you're an ordinary working stiff. If you do plan to claim some of these, the work you did in categorizing your expenses will pay off by making record-keeping easier.

On the investment side, you can save some money by selling -- and then writing off -- investments that have lost money. You can use such losses to offset any gains you may have in a given year. And if your losses outweigh your gains, you can deduct as much as $3,000 of investment losses from your ordinary income each year. Those with higher incomes may also be able to save some money by shifting money out of taxable bonds into tax-free municipal bonds. Whether this makes sense depends on your tax bracket (usually you need to be in the 31% federal bracket or higher) and the spread between taxable and tax-free bonds.

Appeal your home assessment.
If you're a homeowner, you may even be able to cut your real estate taxes by challenging the value that the local assessor puts on your property. You have to have good evidence, of course. And you should call the assessor's office first to make sure you understand the formula for determining the house's value (the assessment listed on tax bills is often only a fraction of the real value that determines your tax). But if recent home sales in your neighborhood lead you to believe that your house is worth less than its assessment and a qualified real estate agent writes an appraisal in support of your claim, then you can file a grievance with the assessor's office and possibly get your bill reduced. The cost: $200 to $300 for the written appraisal. If an attorney handles the appeal for you, he or she will typically charge 50% of the first year's tax savings.

The above suggestions won't work for everyone, and you may have considered them already. But since you alone are privy to the numbers in your budget, you alone know how radically you need to cut. If our suggestions don't appeal, find your own alternatives.

One last caution:
Over time, your income should rise as your career progresses and you manage to save money for investing. But also over time, inflation will raise the cost of living. A mere 3 percent annual rise in prices will double the cost of everything within 24 years. At that time, you'll need twice as much money as you do today to live as well as you do now. So don't start spending your rising income on luxuries you've been denying yourself until you're sure that you're staying ahead of inflation.

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