Now that you have your spending categorized, this means you know where all your money is going. How much it costs you to live and how you spend money to enjoy life. If you found that your income is more than your spending, you’ve already done this next step and can skip it. If you’ve found that your spending is more than your income or you wish to pare down your expenses a bit, then I’m here to help.
Looking at your categories, we have two types. Static categories are your cost to live. This is housing, utilities, child care, pet care, etc. The second is Optional categories, because these are areas we choose to spend. For right now we are going to leave the static categories alone and focus on the Optional categories. However, first we will look at anything you either couldn’t categorize or you listed as some sort of incidental expense. These are most likely impulse buys, like when you are running errands and you grab a quick drink and snack, or your morning coffee stop. Let’s put those in an incidental category and just ignore these for now. Impulse buys are mostly money you don’t need to spend, it happens because in the moment, you wanted something.
Next, lets look at Memberships and Subscriptions: If you have any spending here, you need to take a look at each one of these and see if you really need this in your life, especially right now. My subscription to National Geographic doesn’t cost much, it does add to my life in ways I can’t absolutely define, it is also something I wish to continue. However, that membership to the gym that I haven’t gone to in the last 6 months and I don’t even feel guilty over? That one I can cancel. It costs nothing to take my dog for a walk, right? These are personal choices and I’m sure some of you would have chosen differently in those two instances and that’s ok. This is your budget, your life. Some people have jobs that require they are a member of specific group, or maybe it’s not a requirement but being in the group helps your career somehow. That would be an untouchable expense. You may even find out you’ve been paying for something you thought you canceled a long time ago. Anything you think you wish to cancel, highlight it, change the text color or move it into a category called CANCEL so that you don’t lose sight of it and make sure you cancel it later.
Now, we need to do this with all the other categories that we can, like Entertainment, Personal Items and any other optional category.
Now that we’ve gone through these categories, let’s see where we are in the Income to Expense ratio. If you are still not where you would like to be, then we need to look into the static categories. Most of us don’t really overspend on housing. If you want to save in this category, you need to find a cheaper place to live or find a roommate. You could get creative and rent out a part of your garage for storage or maybe you could start worm farming in your back yard as a couple of ideas to help your home pay for itself. I’m sure there are tons of ideas out there and maybe one will work for you.
Sadly, utilities are difficult to save on. You can keep your lights off, your thermostat optimized for energy saving, watch your water usage and all that and probably save a few bucks a month. If you own your home you could install solar panels on your roof to help with the electricity bill and that could be a bit more significant in savings. That isn’t always an option for most of us and you really should watch out for scams.
Cutting down on transportation costs is another difficult category to cut expenses. If you buy an older car so you don’t have a car payment each month, you have to factor in costs of repairs as it is much more likely that the parts will wear out and need replaced. Let’s face it, the care won’t give us the friendly heads up that regular maintenance does so that we can plan for it in advance. With an older car you will save on insurance and vehicle registration each year. With a new car you don’t have to worry about repairs and some dealerships will throw in 50% to 100% of the maintenance for 2 to 3 years which is also a cost savings, but you will have a car payment along with increased insurance premiums and vehicle registration. If you don’t have a vehicle then you most likely have bus, subway or taxi expenses. Our world just isn’t made for us to walk everywhere we need to go and riding a horse to the grocery store is frowned upon, or so I’m told.
If you have Children and you work, then you probably have expenses for care before and after school if they are old enough to go or daily if they aren’t. Pet Care is also another one that is difficult to save anything. What do you do? Tell your beloved Fido that he can only eat every other day? I don’t know about you, but my dogs wouldn’t stand for it.
So that leaves your own groceries. Coupons frustrate me, running around buying my vegetables here, my meats over there and my fruit at this market to save money only makes me add miles to my car and spend more on gas. I could just live off of ramen noodles and bananas, right? No. Let’s face it, without good nutrition we stand to get sick and not be able to work and then this budget falls apart.
You need to make some choices here if you absolutely need to cut costs. You may have to do without some of your streaming services. Maybe pick one and when you get tired of it or it has nothing you want to watch, maybe you cancel it and go to another keeping only one at a time. I decided to cancel all my streaming services. Netflix, Hulu, HBO, everything. I didn’t have cable tv so all I could watch was the free stuff like Pluto and the channels that came with my smart tv. Since I really don’t watch much tv, it wasn’t a huge hassle. Mostly, I just let a music channel or some documentary about animals play in the background while I worked on crafts or whatever. I didn’t factor in my husband’s enjoyment of television, so instead of cancelling all of our services, I let him choose which ones to keep. It’s all about balance.
At the end of the day, you will get your budget down to a manageable state. You will be able to know exactly how much you have to spend (your expenses) and what you don’t (whatever is left over). The money we don’t have to spend is what we can control and I will discuss options for this in my next post.