A NEW BUDGET FOR THE NEW YEAR
Jan 25, 2014 – by Stephanie Rader, The Write Side of Life
With the new year upon us it is a terrific time to sit down, analyze your budget and “trim the fat” wherever you may be overspending. If you have never created a personal budget it is a terrific idea and the beginning of each year is an ideal time to get everything in order.
Recently our household finances changed drastically with the birth of our daughter and my decision to leave my management position in the legal field so I could stay home with her. We quickly realized that, though the job of a domestic engineer has many rewards, the pay…well, it stinks. Adding a new member to our family and reducing our income by one salary would prove to require some pretty major changes to our budget.
If you’ve never sat down to review your finances and create a budget, here’s a good place to start:
Make a List
I am all for lists and in this particular case you’ll find it’s a requirement. Begin by jotting down where you are currently spending all of your money. It may be helpful to have some items handy like your prior 2 or 3 bank statements or your checkbook registrar to make sure you don’t forget any areas. Don’t worry yet about the order of your items or amounts, we’ll get to that. First just make a complete accounting of where your money is going (i.e., Groceries, Gas, Cable, Internet, Cell Phone, Eating Out, Clothing, Entertainment, etc).
Perfect Your List
Armed with your complete list now make a list with two columns made up of your “Needs” and your “Wants”. Begin separating everything on your list into the appropriate category. (Example: Your insurance is a “Need” but your dining out trips are “Wants”). Once you’ve gotten all of your items separated now it’s time to start calculating the damage. Going through your past financial records, calculate what you are spending on each of these items. It’s a good idea to have at least two months of figures so you can determine your average monthly costs in case certain items fluctuate significantly on any certain month. Add up your overall costs in each column and then combine. This is your current living expense. Are you a little shocked at what you’re spending on certain items? When we sat down and reviewed our budget we were quite surprised at how much entertainment and eating out really costed us each month. The good news is that these are very easy areas to cut back on. Read on for more tips to reduce your expenses…
CUTTING BACK & REDUCING YOUR EXPENSES
Take a look at the past 2-3 months statements for each of your bills to get an idea of your average costs and usage. You would be surprised at how much money is wasted each month on unnecessary items. For example, if you’re just paying your minimum balances on any credit cards, chances are the interest just continues to pile on each month and your the balance on your card isn’t decreasing much. But aside from credit cards, there are also other ways to save yourself money and cut back on what you are spending each month for certain items. Some of them may be obvious but you may be surprised by others.
- Cable/Internet/Phone – Many companies offer reduced costs if you bundle your services. We had two different carriers for our cable and internet. I was reluctant to switch simply because of having to changing my email address but when we found out we could get our internet for less than $15 per month for switching everything to one carrier, it was a no-brainer. Now we are paying less each month for everything than we were previously paying for just cable. And when you are communicating with your providers keep in mind that they have special employees in place for customer retention. It costs more for them to secure new customers than it does for them to simply keep you as a customer so don’t be afraid to “wheel & deal” with them a bit. They always have wiggle room (or surely they wouldn’t be reporting such high revenues each year). There are also usually many promotional offers that they can provide to you. If they are offering a special reduced price for the first year or two though be sure to ask them about any other additional expenses you can expect and also what your costs will be at the end of the promotional time period. We also eliminated our home phone altogether. When everyone in the house has their own personal cell phone it makes the home phone a little unnecessary. If you live in an area that doesn’t get great cell phone service, however, this may not be a great idea.
- Cell Phone – Speaking of cell phones, have you ever taken a look at your actual plan details? Most of the time when you begin a contract you allot yourself the maximum of everything because it’s cheaper to pay more each month for the highest service plan than it is to pay overage charges. But chances are you probably aren’t using it all. Many cell phone companies advertise unlimited talk and text but they still generally have tiers for the size of data plan you need. When we reviewed our budget we found that we were only actually using half of the data we were allowed each month. So by reducing our data plan allowance we were able to drop our monthly cell phone bill by 15%.
- Insurance – Whether it’s health, home or car, insurance costs can be astronomical. But there are plenty of discounts you may qualify for of which perhaps you weren’t aware. For instance, having multiple items on a policy, claim-free history, having other security or protection plans in place, etc. can all help to lower your premiums. Making a call to your insurance agent regularly to review your policies could be a call that saves you quite a bit of money each month. Also, many agents may be able to offer you a reduced price if you can prepay your premium in more than one month installments (i.e., paying half the year’s premiums up front or even the entire year).
- Credit Cards – As mentioned above, if you are just paying the minimum balance on your credit card, after the interest gets added on you may find you’re not really paying down your balance by very much. Though paying more doesn’t exactly save you money each month, this is an area that could save you hundreds or even thousands over the length of time. If your card is accruing a high interest charge each month take a look at your overall balance and see if you are able to split it into three months to pay it off. This will eliminate months of interest charges and prevent lots of extra money from being wasted. If you have higher balances then perhaps it will take a bit longer. Pay close attention to your monthly statement. Since the changes in the law involving credit card companies and their practices you should be able to see easily how long it will take you to pay off your balance if you only pay the minimum amount due. Don’t be surprised if you see a date that’s years out from now. Just imagine how much extra interest you are paying them to drag it out that long! When making purchases with a credit card it’s a good idea to live by the rule that if you can’t pay it off within three months you shouldn’t charge it. Of course emergencies may come up where you don’t have the option to decline. But if you live by this rule then you’ll likely find that you’re not using your cards as often and so they will be more readily available to help you in an emergency without “breaking the bank”. Another area you can take advantage of is if your credit card company offers times during the year or purchases that accrue “No Interest” for a certain period of time. Just make sure you have it paid before the specified cut off date.
- Energy Efficiency – If you are surprised at how much you are paying for things like water, gas/electric, fuel, etc. then give some thought toward how you can make use of these items more efficiently. Whether it’s turning off extra lights or switching to energy saver bulbs, turning off the water while you’re brushing your teeth or maybe installing a more energy efficient appliance like a toilet, dishwasher, refrigerator, etc. You can also try repurposing things to cut back on waste and avoid the need to something new. We added insulation in our house and have reduced our gas & electric bill by one-third! There are also other perks to making energy efficient improvements in your home. They may get you an extra credit on your taxes too!
- Groceries & Dining Out – Cutting back on how frequently you eat out can make a huge difference. If you are routinely grabbing lunch out somewhere that can add up to quite a bit each week. Instead try packing more often and reserve treating yourself to lunch somewhere for maybe just once a week or month. When it comes to cooking at home, review your local ads for that week to see what’s on sale and plan your menu for that week accordingly. Planning your meals in advance alone can help tremendously in eliminating unnecessary and excessive purchases, but when you can do it based on the sale prices at the grocery store the savings just continue to pile up. You can also save quite a bit by joining your local supermarket’s customer discount program. Most of them have one now. This can get you exclusive savings, promotional discounts, and coupons. Speaking of coupons, you know, those those things your mother used to clip out of the paper each week? Well, they’ve evolved too. And you don’t have to be an “extreme couponer” to benefit from coupons. You can now view and print your coupons from the internet but also use apps that store the coupons right on your phone so you don’t even have to print them anymore! Our local grocery offers a digital coupon program where I can review their available coupons each week and save them to my account. Then when I check out I simply enter my phone number on their keypad and it applies all of the coupons I had saved.
DON’T STOP WITH THE BUDGET
If you are finding a little extra in your pockets, consider how you can best utilize that extra money. Maybe paying for your family vacation this year or setting up a savings account or even starting an IRA where you can watch your money continue to grow.
So there you have it: Some key ingredients to the recipe of saving yourself some money this year. Good luck!