-
Step 1
Create a Budget --
A budget is the tool that allows you to understand how your costs relate to your income. A good budget breaks out your income and expenses into categories to provide clear visibility to monthly revenue (how much you take in), expenses (how much you pay out), and net income (how much you’re left with (or short) at the end of the month). For example, income categories could include: salary/wages (standard take home), overtime, and other income. Expense categories could include: car payment, car insurance, groceries, rent/mortgage, electricity, gas, phone/mobile phone, water/sanitation, cable/internet, and miscellaneous.
To create a good budget use values for each category that represent what you are actually taking in or spending. It is important that you understand what is truly happening before you decide what actions will be necessary to make improvements. -
Step 2
Identify Areas of Opportunity --
With your budget in place you now have a realistic view of your bottom line. Does it look good? Are you in the red (negative net income) or in the black? How much you need to change your bottom line will determine the actions you choose to take in steps to come. Once you know how much money you’re looking for you can decide how aggressively you want to go about making changes.
It has always been my preference to begin by first looking at where I am spending money. Given that approach, let’s begin by looking at the areas where we spend the most money, because those will likely be the places we can make the biggest impact.
Note: I will not cover expense areas such as Rent/Mortgage and Car Payment. These expenses are typically fixed and the process of evaluating changes to these areas is outside the scope of this article. -
Step 3
Dining Out --
There are many personal finance articles that expound the merits of reducing or eliminating eating out. So I won’t spend much time on that area. What I will share with you is that there are plenty of ways to reduce the cost of eating out. Here are a few examples:
- Kids Eat Free at O’Charleys with the purchase of an adult entree
- Monday is kids night at Buffalo Wild Wings
- TGI Friday’s has a good diner loyalty program (earn more stripes)
- Restaurant gift cards - check for promotions (spend $25 get $5 free) -
Step 4
Groceries and Coupons --
Moving into the area of grocery bills, it is not uncommon for a family of four to spend more than $200 a week on groceries. In round numbers, that translates to more than $10,000 per year making this a primary area of focus.
I have found that there are two great ways to save money at the grocery store: buy off-brands when possible and use coupons.
It is up to each of us individually to decide which off-branded products are acceptable. For some, Sam’s Choice soda is a perfectly fine substitution for Coke or Pepsi, for others it is worth the extra $1 per case to buy their favorite brand. But some examples you may want to consider include: shredded cheese, sandwich bags, aluminum foil, napkins, cleaners, canned vegetables, and paper towels.
With respect to coupons, I have come across a few excellent ways to realize savings on items we routinely purchase from the grocery store. Cutting coupons out of the Sunday paper is a time consuming, hit or miss proposition. Instead, I suggest printing on-line coupons. Sites such as www.couponbug.com offer printable coupons on a variety of products. Another option is to clip coupons from manufacturer’s web sites such as www.pgeverydaysolutions.com (the website to request samples and coupons for products from Proctor and Gamble).
Another way to acquire coupons is to purchase them from sellers on www.ebay.com. Sounds a little unorthodox, but there are many legitimate opportunities to purchase valuable coupons for a fraction of what you will save. Whether you are planning to shop at Lowe’s or Home Depot for a home improvement project, or going shopping at Kohl’s or just looking for coupons to save you some money at the grocery store, Ebay is definitely worth a look for coupons. -
Step 5
Communications --
Do you realize that most people pay thousands of dollars per year just to stay “connected”? Telephone, Cell Phone, Cable/Satellite TV, and Internet bills add up quickly making this the next place to look for unnecessary services that you may be paying for.
I recently changed cable providers to consolidate my voice, internet, and TV service to one provider. Doing so allowed me to reduce my monthly cost for these three services by $50/month while actually increasing the level of service I receive. While this isn’t always possible there are a few TV related money pits that are easy to overlook. First, are there set top boxes in your home that you rarely (if ever) use? If so there is a good chance that you are paying $6 or more per month for each of them. Second, are you paying full price for subscription services (HBO, Showtime, etc...)? If so, call your TV provider and share with them that while you enjoy these channels they are very expensive, and ask if they have any specials they can provide to a loyal customer. It won’t always happen, but when it does you can save $10 to $20 per month while still enjoying your movies.
I recently discovered on my monthly internet bill that I was being charged $5.99 per month for internet security (that I was not using). I already had internet security setup through another provider and so I promptly called my carrier and cancelled the service. The point here is to scrutinize your bills. If you’re not sure what something is on your bill, ask. If you see something that you don’t use, drop it. If you really want to see your utility bills go down, drop unnecessary services from your TV, phone, and internet providers. -
Step 6
Miscellaneous --
Every household has a wide variety of areas in which money is spent that doesn't naturally fit into other categories such as utilities, insurance, mortgage, car payment, or groceries. A great way to to control spontaneous or unplanned expenditures is to provide yourself a weekly cash allotment to cover those expenses. With a pre-set limit on spending that is controlled by how much cash you have in your wallet or purse you can be sure that the purchase decisions you make every day are supporting your overall budget. For big ticket purchases, you will be required to save money in advance of the purchase rather than using your credit card.
Reducing expenses involves some tough decisions and possibly some sacrifices, but it can be done. The next step is yours to make...
Comments
porter8 said
on 10/25/2009 Great article. While there are some easy ways to save money (clipping coupons or buying off-brands) it is much tougher to cut areas like cable TV and cell phone service. But doing so can save hundreds of dollars.