Tips on Budgeting
Step 4: Trim the Fat
Some of the most fundamental tips on budgeting come into play when you realize that your expenses add up to more than the income you bring in. There’s nothing quite like the sinking feeling you get when this realization hits home.
I know it’s scary, and can feel hopeless. I've been right where you are. That's why I can tell you truthfully that there really are steps you can take to change this situation. It’s not magic – you can’t snap your fingers and suddenly have plenty of money each month. But if you’re willing to put in the effort to change your financial picture, it will happen. It is absolutely possible.
And the sooner you begin, the sooner you will feel better about yourself AND your finances.
TIME TO TAKE ACTION
The first of my tips on budgeting is as basic as it gets, but something no one wants to consider: stop spending. Stop. Right now. I can’t say it any more clearly. That may sound rude to you, or maybe it makes you laugh hysterically because it seems impossible. Either way, once you’re done reacting to that statement, you’ll realize there’s no choice but to actually, finally, act on that statement. If your monthly income does not cover your expenses, you have to stop spending money. It’s that simple – and that hard.
Let’s be honest – spending above our means – using plastic and credit instead of cash – is the biggest part of what gets us all into financial trouble. There are a lot of toys and temptations out there, and it’s hard to tell ourselves “no.” But this is part of the “effort” I referred to a minute ago. If you are not willing to do the hard work of saying no to yourself (and meaning it!) your finances will continue to spiral further and further out of control.
Take a minute to think about it. Be sure a solid financial foundation is your priority….
Ready to go? Wonderful! Let’s move on to the rest of the tips on budgeting.
It makes sense that the next step in the budgeting process is to prioritize your expenses, and then review them one-by-one to see where you can cut back.
Look at each expense one-by-one with these 3 questions in mind:
- Is this expense essential?
- Can it be adjusted in any way to lessen the cost?
- Can it be eliminated altogether, at least for awhile until my financial situation improves?
Here are some guidelines to help with this process:
- According to experts, housing costs should be no more than 30-35% of your gross (before tax) income. “Housing costs” includes rent or mortgage, along with taxes, insurance, and utilities. In today’s economy this may not be completely realistic, but use it as a benchmark to shoot for. If you’re spending more than that you should review those expenses to see what can be reduced.
- Health, life, and vehicle insurance – and in some cases disability insurance or long-term care coverage – are essential elements of a budget. Here’s another one of my important tips on budgeting: do not skimp on these important protections. Leaving yourself and your family unprotected and open to complete financial ruin to save a few dollars a month is foolish. On the other hand, it is a smart move to review your coverage and even compare quotes to be sure that you are properly covered for a fair and reasonable price. For more information on insurance coverage
- Start your search for places to trim with your miscellaneous expense category. You will be surprised where potential savings are hiding! You can find $8-$18 per month by cutting out just 1 coffee each week, or $40 and more per month by changing your lunch habits.
for details on these two ideas and other creative suggestions to help you begin. It’s almost like going on a treasure hunt once you get started!
- The expense categories of clothing and personal grooming are also good places to explore possible budget savings. Most of the expenses that make up these categories are frivolous – things that you want, not essentials that you need – and can be scaled back or eliminated altogether if your budget shortfall requires it. If you need more detailed help with trimming in these areas – like how to painlessly cut out 2 hair salon visits a year, for example – just
KEEP YOUR MOMENTUM
Once you have decided what’s essential and what can be adjusted, start from the bottom and begin trimming. Are you able to reduce or eliminate enough of your miscellaneous expenses to close the gap in your budget? If not, repeat this exercise as you move up through your other expenses.
Let's go back to one of the very basic tips on budgeting: Stash the credit cards. Put them away to be used ONLY in an emergency. You’re going to be tempted to make up the shortfall by charging “just this one thing,” and then another. Don’t do it. Here is another of the crucial tips on budgeting: your hard work will be completely wasted if you use credit cards to pay for things that don’t fit into your budget.
One more budgeting tip: trim a little more than you need to, to give yourself some breathing room each month. I don’t mean that you should cut back on one expense to just waste that money on something else. This is money that you should stash away if it’s not needed to cover a necessity that month. Put it into your savings account for that rainy day that always comes. Or if you’re disciplined at the art of living on this budget you’re building (something I’ll lead you through in Living on a Budget) you can roll it over (on paper) as part of next month’s miscellaneous (read that “emergency”) fund. That’s what I do – and then it’s there when something unexpected happens. Not only does that safety net keep my stress level down, it also saves me from having to put emergency expenses on a credit card and starting that whole cycle all over again.
At this point, I hope that you have been successful in identifying ways to save enough money to bring your budget into balance. If so, congratulations! You’ve put a lot of effort into making a plan to help you manage your money and break the credit cycle, and now it’s about to become part of your everyday life. In Living on a Budget I will teach you how I work my own plan each month, how I control my spending (in other words, how I follow my own tips on budgeting!) and how I keep myself on track toward my goal of living debt free.
On the other hand, you may not be celebrating at all. You may be facing the reality that after trimming and cutting in every possible way, your expenses still exceed your income. I know that this is a really tough position to be in, and it’s scary. If all of your expenses are pretty well fixed where they are, and you’ve been honest with yourself about your needs vs. your wants, then your next step has to be to find ways to bring in additional money. In Creative Ways to Make Money I talk about a lot of ideas for adding to your income, whether you need a little or a lot. Check out the list of suggestions. Let them help you think through the best income solution for you.
This leads right to the last of my tips on budgeting – along with adding to your income, you also need to continue your budgeting process, and learn to live on a budget. If you skip this lesson the extra income won’t help you at all. Your bad spending habits and poor money management will continue to cheat you out of your financial security no matter how much money you make. Please don’t let that happen.
You’ve done such good work to come this far – don’t stop now.
Move from Tips on Budgeting to Living on a Budget
Step 1: Identifying Your Expenses
Step 2: Turning Oranges into Apples
Step 3: The Balancing Act
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