The economy is in bad shape now and layoffs keep rising, now millions of families must take steps to sort out the household balance sheet by cutting as much expenses as they can. What bugeting does is help you identify what you are spending and where to decide how to cut back.
For many people, especially wealthy people, budgeting and controlling expenditures are tough because they’ve never had to do it before. With the economy the way it is, even they are feeling the pinch. Budgeting can also be tough for emotional reasons. Some people hesitate to budget due to pride, ego and embarrassment, they feel they are above such things and continue to spend lavishly while their debts pile up. If they are laid off, the person with the most pride and ego will be the one closest to financial disaster. Budgeting has to be done, if you want to avoid future financial hardship.
A family must start by listing all their expenses, and then categorized the expenses as urgent, important or discretionary. The difficult part is usually trying to figure out what is urgent and what is important. Urgent items are the last expenses to be trimmed or cut.
The budget itself, should be set up in the following way:
- 10% of income for long-term goals such as retirement and children’s education.
- 70% of income should go to the regular living expenses.
- 20% should be for the emergency or buffer fund.
The emergency fund prevents people from living on credit, if a job loss was to happen.
One of the most evil of all financial instruments is the credit card and reducing the use of credit is a key to making a budget. Credit cards can have high interest charges and they also make it easier for you to spend beyond your income. Scrutinize your loan payments and credit card bills and start paying off the ones you can, starting with the higher-interest-rate ones.
After examining your credit bills, the next group of expenses you should focus on are big-ticket items.
Consider chopping these items:
Vacations
Take trips less often and make them shorter. Look into ways of saving money on vacations, consider travel by train, which cuts down on hotel stays, and piggyback on professional conferences or business trip which means your flight is paid for already.
Instead of cruising the Caribbean, why not visit a family member. You can eliminate hotel costs or slash them by staying with a relative.
Club memberships: country club, golf club
No club membership is more important than keeping your home or putting food on the table.
Dining Out
Dine at fancy restaurants less often. Don’t be shy about taking home lefovers.
Automobiles and boats
Hold off buying a new one, however if your car breaks down completely, you should buy a less expensive. As for leasing a car or boat, just don’t do it. Leasing doesn’t build any equity, you can’t resell it and it just adds to your debt.
Insurance
Don’t be afraid or lazy to shop around for insurance rates. You can often find the same coverage for much less money.
Buying On Credit
If you have to buy using credit, try a longer payback period. You’ll pay more interest over the long run, however it will cut your monthly bill amount where you can afford it. Only buy on credit if you really, really have to.
Cable TV
You don’t have to cut it out completely. Consider switching to a less-expensive plan. If it’s movies you want you can try watching free movie websites online or use NetFlix.
Cutting other small expenditures here and there can save hundreds, if not thousands of dollars a year. Go to beauty salons and barbers at longer intervals. Other indulgences can be cut as well. Like a manicure why not learn to do them yourself.
Temporary sacrifices can be made and spread as evenly as possible through the family. Children don’t have to go to summer camp this year or simply just go for fewer weeks. An alternative is to send the kids to day camp instead of overnight camp.
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