The goal of managing your personal finances is to make sure the flow of your money is aligned with your core values and vision for your life. It’s really important that you clearly understand what you’re trying to accomplish in your financial life before you start making cuts to your budget.
A general idea that “paying off some debt” or “putting something into retirement” won’t be enough to keep you consistent with your budget. You need a clear why driving all your efforts. Your why will empower you to hang in there when temptation comes your way.
Take a minute to write down exactly why you’re cutting your budget.
Got it? Good. Let’s get started.
Divide and Conquer
In order to determine what can stay and what needs to go, you need to know where your money is going every month. It’s hard to know what to cut if you don’t know where your money is going. Your first step will be to print out or pull up your account transaction info for the last 30 days.
Gather all your transaction data from your bank accounts and any active credit cards. Then list out every expense for the last 30 days. You can skip things like one time purchases or irregular appointments. We want to get a full picture of where your money typically goes.
Categorize Essential vs Non-Essential
Once you’re sure your list of expenses is complete, you can begin to sort which expenses are essentials and which are not. So what do we mean by essential? An essential would be anything you need to live. Essentials include things like groceries, utilities, minimum payments on your debts, rent, necessary clothing purchases, phone, internet, and transportation.
Non-essentials include things like entertainment, eating out, coffee from your favorite shop, snacks, and hobby expenses. Before you start protesting that you need to eat out to stay sane, I hear you. We’re not talking about cutting all non-essentials yet, but we’re trying to see what we need vs what we want. This process lets us see how much of our budget is being eaten up by wants instead of needs. Until we see those numbers, it’s hard for us to be objective about what we need and what we really want.
Before we move on to cutting anything, take a minute to see what non-essentials are killing your budget. Ask yourself if you’d rather make progress on your dreams, or have all those non-essential purchases.
Cut the Obvious Non-Essentials First
Before you sacrifice those non-essentials that bring you joy, let’s hone in on the easy to cut things. That subscription-based service you forgot you were even paying for? Yeah, that’s got to go. Maybe you’re paying for a massive cable package or multiple streaming services. Pick one or two services you use the most and cancel the others. Maybe consider making coffee at home instead of picking it up on your way into work.
Once you remove those things, add up those cost savings. Look how much you were spending on things that really don’t add much value to your life at all. You basically just got a raise, right? Pretty cool.
If you still feel the need or desire to cut more, here are some of our best suggestions.
Above and Beyond
If after making the above cuts you still need or want to make a bigger dent in your goals, we have a few suggestions for you. The first of which is to consider getting a side hustle. We covered several side hustles almost anyone can start today in another article. Check that out and see if you can increase your income and gain momentum that way. But if you’re already working as much as you can and you still want to make some cuts, here are some more steps you can take to really tighten your budget.
Shop for some new home and/or car insurance with an independent agent.
Independent agents are able to compare the rates of all the companies and get you the best deal possible, based on your insurance needs. Loyalty to a company use to be rewarded with discounts, but that’s not always the case these days.
Change your cable, internet, and phone plans
Make sure there’s no fluff in your cable, internet, or phone plans. You could potentially save tens or even hundreds of dollars depending on your current package just by making a few phone calls.
Take up meal planning
A lot of us end up throwing out hundreds or thousands of dollars worth of spoiled food every year because we went into the grocery store without a plan. By making a detailed meal plan, you can know exactly what you need to feed everyone in your house. Someone I know saved over $200/mo by sitting down and creating a detailed meal plan every month.
One Person’s Trash is Another’s Treasure.
When people think of tightening their budgets, they rarely think about selling things to get a little momentum towards their goal. We often have numerous possessions that add little to no value to our lives that others would gladly pay for. Consider selling anything valuable that you’ve not used in the last 1-3 months. This can include everything from expensive things like phones, video games & consoles, computers, and unused electronics to name brand clothing, shoes, tools, or hobby related supplies.
Don’t waste your time though.
Set a specific value threshold on everything you consider selling. You want to make sure you’re respecting your time. A good threshold might be a minimum of $10-20 dollars. Once you set your threshold, comb your apartment or house looking for anything that you haven’t used in the last 1-3 months. It’s not uncommon for people to find $250 worth of things collecting dust in their homes.
Create a budget that works for you
Ultimately you’re the one who has to live with your budget. Sometimes in our enthusiasm, we create ambitious plans that we can’t stick to. If you budget too tightly, you might find yourself facing incredible temptation to break out of the budget and buy something. If this sounds like you, consider loosening your budget a little bit. You can incorporate planned for, measured treats along the way.
It’s YOUR budget.
If you’re a real coffee snob, consider adding a 12 oz bag of your favorite, high-quality beans to your monthly budget so that you’re not only drinking the discount beans. Or if eating out a couple of times a month as a reward will keep you motivated, budget for your favorite meals and drinks so that you have controlled expenses vs. spontaneous, unaccounted for expenses.
Remember: The best budget is the one that aligns with your values AND that you can stick to.
What are your biggest cost-saving tips? Let us know on social media!
We’d love to hear what works for you.