Living on a budget is the key to financial freedom, but getting started can be frustrating. When we look at our expenses and see all of those bills we’re paying every month, it’s easy to throw our hands up in disgust. But what about all those little expenses we incur? You might be surprised to find out just how much they amount to.
It’s easy to dismiss cutting back on little things. A few dollars a month won’t make a significant difference in the big picture. But a few dollars here and a few dollars there adds up to a few more dollars. When you cut back in a lot of small ways, you could end up with a lot more money at the end of the month.
Waste Not, Want Not
One thing we can do that is good for the budget is stop wasting so much. This can apply to many areas in our lives. From eating to home heating, waste equals money going down the drain unnecessarily.
Cooking for the family instead of eating takeout or dining out is a great way to save money. But if you’re throwing food out, the benefit is reduced. So if you have leftovers, don’t let them end up in the trash. Some dishes freeze well, and this makes for easy dinners when you don’t have time to cook. You could also eat dinner leftovers for lunch the following day.
If your home is not well insulated, you’re probably wasting lots of money on home heating and cooling. Insulating will cost some money up front, but it will pay for itself quickly. If you have drafts around windows and doors, weatherstripping can help maintain the temperature of your home.
Most households waste an unbelievable amount of electricity. This can be prevented in part by using energy efficient appliances and light bulbs. Turn lights, televisions, computers and other devices off when you’re not using them, and open blinds to take advantage of the sun’s light during the day.
Do Yourself a Favor: Do It Yourself
Any time you pay someone else to do something that you could do yourself, you’re spending money unnecessarily. This applies to little things like buying coffee instead of making your own, as well as to larger expenses such as home repairs.
Many of us buy coffee or a soft drink from a convenience store or coffee shop on the way to work in the morning. This can really add up over time. Instead, make your own coffee, or buy soda in 2-liter bottles and pour some into a smaller bottle or cup to take with you. The same applies to lunches. Instead of springing for fast food, take a sandwich or something microwavable to work.
While we’re not all good at all types of repairs and maintenance, most of us can do some things for ourselves. Maybe you could change your own oil instead of paying someone else to do it. If the walls need painting, consider getting friends and family to help you do it instead of hiring a painter. Things like these can save us a noticeable amount of money right away.
When you add up the savings, little things can make a big difference to the budget. So take a close look at your budget and see what small expenses are lurking there. If you can eliminate or reduce them, it could positively impact your bottom line.
Debt has a way of creeping up on us if we let it. It’s important to keep our debt at reasonable and manageable levels, or we could end up incurring insane interest charges and scraping to make our payments. Even for those who manage debt well, unexpected life changes can result in difficulty making ends meet.
When we find ourselves having problems with debt, the first course of action is to take a look at the budget. Finding ways to cut back on unnecessary expenses can help us pay down debts and keep monthly bills current. But what happens when we can’t solve our debt problems with budgeting?
Sometimes we need outside help. It’s hard to go to someone else when you’re having money troubles, but if you don’t gain control over your debts, your credit rating will suffer. So it’s important to take charge before it’s too late.
Some debtors turn to debt consolidation as an answer to debt problems. They transfer high-interest debts to a lower interest credit card, or they put up the equity in their homes to get the money to pay them off. While these options can provide lower payments, they are not without drawbacks. Closing numerous accounts and putting all of your debt into one account can negatively affect your ratio of debt to available credit, lowering your credit score. And if you use your home equity to secure the money needed to pay off debt, you’re putting your home at an unnecessary risk.
Another popular option for those with debt problems is credit counseling. Credit counseling agencies offer help with budgeting, and in some cases, they will set you up with a debt management plan. A debt management plan involves negotiation with creditors to obtain lower interest rates and lower payments. The debtor makes one monthly payment to the credit counseling agency, and the agent forwards payments to each creditor.
A debt management plan can help you get out of debt faster, but it can also impact your credit. A note is added to your credit report stating that you are undergoing credit counseling. This means that you can’t get new credit. However, the notation is removed once you’ve paid off your debts.
It’s also important to make sure you’re dealing with a reputable credit counseling agency. Some charge high fees or fail to make payments to creditors on time. There have also been some that were found to be outright scams, keeping the money that debtors sent them to pay their bills with. When considering credit counseling agencies, make sure they’re members of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling (NFCC). These organizations regulate and monitor member agencies, making sure that they operate legally and ethically.
An overabundance of debt can wreak havoc on our finances and our credit scores. It can also be the cause of undue stress. By seeking help at the first sign of trouble, we can often prevent our debts from spiraling out of control.
For singles, creating a budget is relatively easy. They tend to have a good handle on how much money they have coming in, and when tracking expenses, they only have their own to think about. But creating a family budget is a whole new ball game.
Most families have multiple sources of income. And when there are multiple spenders, that makes things much more confusing. This is one of the main reasons that families lack a formal budget. But having a budget and sticking to it can greatly improve a family’s financial outlook.
Making a family budget may be tricky, but it can be done. Here’s how.
1. Take inventory of all income. If a certain source of income fluctuates from month to month, use the lowest amount or average it out.
2. Keep track of all expenses for a month or so. Keep all of your receipts, and ask all family members to turn theirs in to you each day.
3. Add up your monthly expenses. Be sure to include bills, debt payments, groceries, and everyday expenses such as lunch money and transportation costs.
4. Get the family together and discuss ways you can trim the budget. Getting input from other family members will help you determine which expenses are necessary and which ones could be cut down or eliminated. Maybe you or your spouse could start taking lunch to work instead of eating out, or maybe the kids can drop an extracurricular activity.
5. In addition to individual expenses, discuss how you can cut down on the electric bill, groceries and other necessary family expenses. Consider such things as carpooling or taking public transportation, buying more generic foods and adjusting the thermostat.
6. Estimate how much you can save on regular expenses, and cut the completely unnecessary items out of the budget. Then refigure it and see where you stand.
7. If you end up with a surplus, allocate a portion of it to savings. If you’re in the red, go back and rework the budget until you have more income than expenses.
One reason that family budgets often fail is because they’re just not realistic. It’s great to cut down on expenses, but sometimes we tend to go too far. For example, cutting entertainment out of the budget completely might look good on paper, but we all need a little diversion every now and then.
Instead of cutting such things out of the budget completely, consider finding ways to lower the cost. Going back to the entertainment example, maybe you’ve been going to dinner and a movie as a family twice a month. But eating in and renting a new release would be much cheaper, and you would still get to spend quality time together.
Individual expenses can also be tricky. This can be resolved by allocating a certain amount for each family member to spend each week. If someone spends his entire amount before the week is up, reevaluate his expenses and adjust if necessary.
Creating a family budget can help keep spending under control, leaving more money to pay down debts and save for future goals. But in order to succeed, close monitoring is essential. Your efforts will be rewarded, however, with less financial stress and more money in the long run.