Consiously Get Out Of Debt Part 5: Knowing What To Budget and What To Cut
Knowing What To Budget and What To Cut
Firstly, budget is the wrong word; the first step is seeing where you are at. Now is the time to stop procrastinating. Start now, make sure you have all your financials as discussed prior in a box, in their files, pulled together. Contact your financial institutions if you are missing documents, but prepare everything you have. Follow the steps of find out where you are at, and write down your expenses versus your income.
- Once you have organized it, take a look at your current monthly spending to your current monthly income. Identify which services you can cancel and do without. Start cutting expenses, or identifying where you could start cutting expenses.
- From the exercise we discussed earlier, you know where the emotional buying is occurring, identify the emotional buying and decide that you are not going to buy on impulse, to impress anyone, under anyone else’s pressure.
- Begin the credit fast! Don’t buy products on credit cards, using department store cards, or any other kind of credit, especially if it is an expensive item like furniture, etc. If it is too expensive, try to use as little credit on purchasing the item as possible.
- Mentally sit down and make a list of all the things you personally will go through if you don’t follow the budget and continue to spend money, if you do not make this change in your life, what negative and bad things will happen. Then sit down and make a list of all the wonderful things that will happen if you follow the budget, pay off your debts, and learn to save money to get capital in your life. Maybe its a new house, a vacation, a successful business venture, a new child, or an existing ones education. Right it down. This is a vital exercise in understanding why you are doing this.
- Sit down now and allocate what funds you need to live, and figure out how much cash you have on hand once that is taken care of.
- With this information, take the blank worksheet below, and the information you have filled in, and begin filling out what the monthly budget is for this month. This is your goal sheet. Keep a blank sheet, and track this month’s spending in that sheet to compare how close to the goal you are. Continue this activity monthly. Try to foresee expenses, if you pay car insurance once a year, try to spread it over a monthly expense. For example, if there is an expense such as a medical operation that is expected, a tuition fee, or something like this, make sure you consider a monthly amount to put in place.
- You have likely already compared your income to your spending. It is either a deficit or a positive. In the event that it is a deficit, you will need to devise a plan for dealing with it. You have a clear list of all of your expenses, and you know your monthly budget currently.
*If you think you income is going to go down, then you need to budget this. However, it is much more serious than that, you may have to also consider how to supplement this. I highly recommend you take a look at the Business Success Series, Exploring Business Opportunities and the Profit Through Selling book. You may want to try to come up with other ways to make ends-meat, additional income, and earn cash that is being lost.
THE ABC’s of Cutting Expenses
The ABC’s of cutting expenses is about prioritizing and planning your expenses and dealing with them on that basis. Now that you are aware of your emotional purchases, you know that these are not absolute or essential expenses, they are usually just convenient. Well, your expenses need to be broken down into categories of:
“A” for Absolute or an essential expense. These expenses are likely many of your fixed expenses, utilities, rent, school fees, and some variable expenses related to food.
“B” for Beneficial or expenses that are part of your daily life that are not absolute, but are an important part based on some personal criteria. An expense like this may be having a fax line at home, or internet connection, even though you could find it elsewhere, it may not be absolute, but its beneficial to your work, livelihood, etc.
“C” for Convenient. These are expenses that are closer to the emotional purchases, but have some importance, such as entertainment expenses, and are considerably more variable in nature. Some of your fixed expenses may be only convenient, and one should consider cutting as many of those as you can that are really not absolute and are only convenient. However, you may be able to find a cheaper internet provider for example, cut cable, find a cheaper home phone provider, cheaper cell phone provider, etc. You may be subscribing to a brand because it is convenient and habit, but you can cut the cost by finding something cheaper. In any event, this may put some of your fixed expenses as only convenient to use the brand, but you can get it cheaper elsewhere. Now is the time to find the competition, and same money. Consider whether your subscription is only one of convenience. If you are contributing to a savings plan or retirement plan, it is best to stop doing this, and if possible, move funds into a savings account that can be used towards the budget and getting out of debt. Savings plans would count as a convenient item, since you are losing in interest on debts, much more than you could gain in savings at this point.
The first step is utilizing the ABC’s is to now begin cutting out and reprioritizing your expenses. Other cost cutting initiatives could be considered, such as the brand of products you buy, the Grocery Store you shop in may be one with higher savings, etc. Where you shop may be convenient, but you need to plan. One of the best ways to save in the food area is to actually plan a menu for the week, organize the food by buying it in advance from a cheaper store, and then budget your food spending. These types of projects lower cost and build routine. Plan the day you eat out, or limit it to one time a week for example, provided you have been able to keep on track and make reductions that will show a long term gain. Reward yourself.
How Can You Spend Less
You have to be creative, some suggestions are as listed above:
- Make a menu of food for the week. Have fun, make a menu, buy the food at a store that is not about convenient but rather about the price of the food to quality. Consider where you shop and what you eat. Try to make it affordable and fun.
- You have already broken your expenses into ABC’s, take the expenses that you have that exist and decide if you can get it cheaper. Make the changes or have someone in the family organize the changes. You may have to go on the internet and research what deals are out there and what providers. If you are looking for some competitive examples of providers across Canada, feel free to submit a question on it to email@example.com. I would be happy to have a make shift project for one of my assistants to look into cheaper prices and providers within your area. Who knows, there may be alternatives. I am always looking for new blog content ideas, and nothing is better than lists and comparison blogs. If you find yourself having a difficult time making a decision, contact me.
- If you really want something, a CD, a new shirt, etc, try to find a deal on it, or ask when certain products will go on sale. Make the effort, search the internet, talk to friends about places where there are specials, make a chat room out of it to better know your city.
- Consider expenses in your home such as moving to lower your rent, taking on a renter if you have an extra room or too much space. I moved in with my parents to lower expenses, and moved to Africa. I am not saying you need to be that drastic of a move, I have the liberty to do so, but it definitely solved all of my spending habits and expenses in one swoop. Maybe moving in with parents, family, or friends is a good idea if it can lower your costs to zero or lower. If you own your home, consider lengthening your mortgage, making the payments weekly versus monthly which can lower interest. Refinance the mortgage, consider selling your home, find a renter, etc. Some would say rent your house and move into cheaper locations, however, I have seen this go bad for close friends, and they end up paying a mortgage and rent. It is something you can consider, but be careful if you go that route.
- Take David Suzuki’s advice, its good for the environment! Where a sweater at home, use your heat less. Make your home more efficient with cellophane on the windows, thicker curtains, or blankets over the front windows, do what you need to. But insulate your house not to lose heat, and be sure to use less air conditioning or electricity in the summer. Look at the environmental and cost savings ideas that you can get from your local utility company.
- Coupons, pamphlets, and sales. Find them, use them, and enjoy saving the money but make sure it is products you need and not just the convenience of a sale. Be smart.
- Use public transport if it is convenient, eliminate insurance on vehicles you don’t need to use, or change the type of insurance on the vehicle if it is possible to reduce the expense from a reduced use vehicle. Consider a cheaper car, one that burns less gas, pump your own gas, wash your own car, fix it if you know how to. If not, find a reliable friend who does.
- The internet is a powerful tool, you can find entertainment, you can find education, you can find games, knowledge, all for free. It can also help you find cheaper deals on books, CDs, DVDs, etc.
- Most cities have blogs and information sites on 100 ways to have fun in your city. Many of these ideas are really great ideas you probably have not done in years or since you moved to your city. Walk in parks, visit landmarks, go to the local community center, etc. Skim your local newspapers for free events or shows in your city.
- Schedule game nights with the family, schedule movie nights for renting a movie or get a movie from the Library.
- Invite friends to dinner, make sure it’s a potluck, Bring Your Own Meat BBQ, or a community dinner. I enjoy being invited to these events with friends, and they enjoy receiving me. They often will have a few extra of everything left over. It’s a good way to still be social, and stretch a dollar while maintaining your friendships.
- Consider lowering costs on your typical expenses, have manicure parties with your friends, have hair cutting parties with your friends or styling, in some cases, cut your own family friends hair, buy x-brand products of the same ingredients in your name brand care products.
- Check out thrift shops, swap clothing with friends, fix clothes that have problems with it, such as your kids, or old clothes that can be pulled out. It’s always good to have a Grandma or friend who knows how to fix clothes if you don’t. Now is the time not to be shy and ask if they can fix that favourite suit of yours.
- Attempt to lower insurance costs, health, housing, etc.
- Negotiate with providers on your list to see if they will lower costs, see if they have cheaper options.
Utilise the list when helping you put together your absolute, beneficial, and convenient, and use the items and ideas above to lower and remove expenses from the list. Once you have designed the master plan of lowering your ABC’s, run this program for 30 days, track it, and run your income to spending ratio at the end. You will be pleasantly surprised and happy. One thing that will help you is making more money. Finding ways to make more money will help you get there. Now that you know how to budget, now that you have it categorized, now that you’re a more educated shopper, you can now build a plan to save money, but not without ideas to make money.
By Ryan Gibson, firstname.lastname@example.org