Money Saving Starts Here
Quick! List the top 10 most boring things you can think of! What did you come up with? Folding laundry? Sitting in a doctor’s office waiting room? Watching paint dry? We can all think of less than thrilling activities we’d rather not have to do and I’m sure just hearing the word “Budget” makes you want to run the other direction. But if you are serious about getting out of debt, building your savings, and not living pay check to paycheck, take notice. A budget is a must!
Seven years ago, when we went through a bankruptcy, a budget wasn’t even something we pretended to follow. I always figured that if there wasn’t enough money to begin with, creating a budget wasn’t going to change that. Well let me tell you how wrong I was! You will never get the rest of your financial life in order until you sit down and get serious about creating a budget. There are lots of options out there if you want an electronic version (some free and some not). I personally just use an Excel spreadsheet that my husband, Bill, created for me which calculates all the math for me. If you or anyone in your house have even a basic understanding of Excel, I’m sure you can figure this out. If you prefer to go old-school, paper and pencil is certainly better than not doing a budget (and you could make copies so you don’t have to keep writing the same info from month to month). Follow these steps to get started:
What’s Coming In?
You will need to write out your income as well as your spouses’ and any other sources of money that come in during the month. Total up the monthly income. I also like to list the dates that everyone gets paid so I can determine which checks need to pay for which bills. This will remove the risk of late fees which you definitely don’t need!
Now the Eye Opener- What’s going out?
List all of your bills and outgoing money. Sometimes saving a month’s worth of receipts can help you to see how much the miscellaneous spending adds up. When my husband created my budget tool, I had him list regular, recurring items first. This will include things like rent/mortgage, car payments, utility bills, credit card payments, loans, insurance, etc. Below that I have a section for my variable expenses. I like to use cash in this area so I don’t go over the amount I calculate for that category. This is where I place groceries, gas, clothing, entertainment, office/school supplies, toiletries, etc. You should also have a third section for things you have to save up for that includes savings (obviously), vacation, big buys (like appliances or a down payment for a new car), and debt repayment (we’ll get to that later). For instance, if you know you have a family vacation to Disney coming up next year, divide up the amount you think you’ll need for it by the number of months in which you have left to save. That amount should be factored in each month so you’re not tempted to vacation on credit.
Hold the Phone! I’m coming up short!
What if you have more going out than you do coming in? I truly hope you did not discover that this is the case for you (although, it was for me) but if so, guess what? You’re going to have to make some hard choices. Using a credit card to pay bills is NOT an option. Sorry, but living on credit only leads you further down the rabbit hole. First, cut up your credit cards. You cannot continue to spend what you don’t have and that is exactly what credit cards allow you to do. Second, see what expenses are wants and not needs. This was one of the hardest lessons for us. I mean surely premium cable channels are a need! After all, we don’t go out much and there has to be some sort of entertainment right? Well, yes and no. There does need to be entertainment. We would go crazy without it and human nature drives us to seek pleasure. This is where balance comes into play; however, we need to limit the extravagance of our fun time activities. At one point I was paying $180 a month for a cable/landline/internet bundle. We had all the premium channels. We so loved our HBO original series shows! There was no way to cut this out….or was there?
We did a very courageous thing and dumped our cable and landline portion of our bundle. We kept the internet, though, which enabled us to replace our premium TV/DVR lifestyle with Hulu+ and Netflix. We could still see most of our favorite shows, albeit it was the day after they aired. Some shows did not load until the season ended and that was survivable too. I’m not gonna lie; walking away from True Blood, Game of Thrones, Boardwalk Empire, and some other HBO series shows that we were hooked on was quite painful. But, like all painful things, it eventually got better. We moved past it and now we don’t even care anymore. This one change equated to nearly $100/mo in savings.
We also found some more money by comparing insurance rates. We had our homeowner’s and car insurance with 2 separate companies for nearly a decade. I believed we were getting the best possible deal. We got busy getting some quotes and guess what? By switching insurance companies and bundling our car and home insurance we saved another $140/mo.
I was shelling out nearly $500 a month on my student loans. I had approximately $28,000 still remaining on my associates’ degree and another $20,000 for my Bachelors’. I didn’t realize so many options existed until I called and asked. I was able to change to a graduated plan which gives you a lower payment that gradually gets higher until it is paid off. It does not increase the term of the loan but you’d better get as much debt paid off as you can in the meantime so that when it does go up, you can afford your payment. Due to our circumstances at the time, and me being the only one working, this was the best option for us to get back on our feet. My payments went from a combined $500 to $290. This is another $210 per month in savings.
Cell Phone Savings
Now, cell phones have become pretty essential in our culture. They are our handheld computers, navigation systems, alarm clocks, GPS devices, video recorders, digital cameras. I realize doing without one is not an option for most of us and I’m certainly not going to suggest that you get rid of yours (though some more extreme savers might). What I do suggest; however, it that you look more closely at your plan and carrier. Do you have features on your phone that you get charged for monthly that you don’t really need? If so, call and have those things removed. For me, the biggest savings came with a carrier change. We have 4 lines on our plan so switching to one of the really cheap carriers like Virgin or Cricket wasn’t going to save that much and still give us the reliable service we needed to have. We were using Verizon and had unlimited data, talk, and text for $230 per month. We shopped around and after getting quotes from all of the major players we landed on T-Mobile. We were able to get a data plan close to the one we had along with 4 lines and new phones (using our Verizon phones was not an option, they made us get a new one from them) for $160 per month. This was a savings of $70. I paid off the phones as fast as I could (I think it took 8 months) and we now only pay $120 per month. We are not allowed to get new phones unless we have the cash to pay them in full. Total monthly savings= $110.
There is a magnificent opportunity to save a huge chunk of change on the food you eat. Obviously, not getting take-out, fast food, or going to restaurants will be essential if you can’t get your budget to balance, but there is an even bigger elephant in the room. Your grocery bill. Next to your rent or mortgage, this is likely your largest monthly expense. We were able to reduce our grocery bill from $350 per week (for a family of 4 and 4 pets) to $150 per week. Monthly savings =$800! This was huge! See how I did it here.
Oh, my, how we love our cars! I do drive a vehicle I purchased new (which is a no-no with many financial advisers) but I had a good down payment and I scored 0% financing (sweet!). I have a reliable Toyota that I plan to keep for 10 years. I also have a work commute of 50 miles a day and my car is fantastic on gas. I’m not going to apologize for my RAV4 being purchased new in light of those circumstances. The real problem was my husband’s vehicle. We originally purchased a brand new Toyota Tundra in order to haul our travel trailer (if you don’t know the details of my formerly extravagant lifestyle you can read my story here.). In any case, selling the trailer was one of our first corrections. We lost a lot of money in the transaction but we were free of the debt and it cleared another $415 ($315 payment, $75 storage, $25 insurance) from our monthly outgoing so we took our lumps and considered it a learning experience. I know many of you most likely do not have a trailer sapping your expenses, but if you do (RV, boat, ATVs, etc) and you can’t pay your bills….you guessed it; they have to go! Remember want vs need? Yeah, this for sure goes into that classification. But I digress…back to the Tundra. In an act that can only be labeled as heroic, my husband gallantly stepped forward and offered to trade in his beloved truck for a more practical vehicle. This man adored his truck but he drove a long way to work and it was a gas guzzler. It also came with a $410/mo payment. Fortunately, we had equity in it and we only owed $5000 more on it. We went to the dealership, found a certified used car, and traded in the Tundra. We didn’t have quite enough to pay for it in full but we did reduce our $410 payment to $157 for 2 years. The new car got 34 miles to the gallon and that dropped his gas expenses from $100 a week to $40. Total monthly savings= $493.
In case you are keeping track, with all of these major changes, we dropped our monthly outgoing by $2,268! Keep in mind, if you had asked me before I started a budget if I had any area in which I could cut back, the answer would have been “no”. Absolutely not. Nothing can be reduced here. How wrong I was! You’re going to have to look at your own situation and get tough with yourself. If you do that, there will be money to go out sometimes. There will be money for clothes. You can go on vacations.
Now, back to your budget
Okay, you are right side up and you have reduced your monthly debt. Now is the time to spend every penny. What? Is this lady crazy? Didn’t she just tell us to stop spending? Well, yes I did, but hear me out. Every penny is assigned to your various categories. Remember your car repair, house maintenance, clothes, toiletries, etc? This is where the money not needed for monthly recurring bills will go. You will also designate an amount to your savings, even if it is only $50 a month (though hopefully you found more than that through all of your cut-backs). According to financial guru, Dave Ramsey, $1000 emergency fund will be critical in keeping you covered for true emergencies so you’re not tempted to use a credit card during such times. Put as much in there as you can until you reach $1000. Next, you’ll focus on paying off bad debt. You know the kind; credit cards, loans, car payments, etc. Check out Dave Ramsey’s debt snowball or see my post on how to do it.
Make sure you update your budget at least once per week. I shade in my bills with a different color once I pay them so visually I can tell what still needs to go out. It’s a good idea to work at least 1 month ahead so at the end of say, March, you can see what money you have remaining to pay the bills due at the beginning of April. Make sure you allow for this. You are flowing right from 1 month to the next. This is why I always note which checks are earmarked for which bills. Don’t forget to account for your quarterly or yearly expenses like HOA dues or car registration, too. People always seem caught off guard by this stuff (I know I was) but these things are NOT a surprise. They always come up regularly, just not as often.
By budgeting this way, you will know what expenses are coming long before they arrive in your mailbox. You’ll know what you can spend on groceries, make-up, or pool chemicals. You’ll have money set aside for wedding gifts or birthday presents (obviously “gifts” should be one of your categories). While budgeting probably does fall more into the “watching paint dry” class than the “bungee jumping” one, the sense of balance and peace it can bring to you and your family is definitely worth a few boring hours creating a simple tool to map your spending and guide your path to financial freedom. Happy budgeting!