My mom instilled healthy money habits in me from an early age. As I was growing up, she would prompt me with, “What two words do I always tell you?” to which I would reply, “Compound interest!”
You think I’m joking, don’t you? I’m totally serious.
I’ve learned most of my money habits from my mom. She had to be smart with her money out of necessity, but a lot of her practices make sense for just about anyone.
Let’s whip your budget into shape using some of the knowledge I’ve gained from my upbringing.
Assess Your Current Budget
You won’t know how much you need to adjust your budget until you assess its current state. To do that, use the 50/20/30 rule to get a gut feeling for your financial health.
The 50/20/30 rule will help you separate your budget into three categories: Fixed Spending, Savings/Investments, and Flexible Spending.
(For more information on the 50/20/30 rule, read this post about it.)
Once you’ve taken stock of your current situation, start looking for places to make adjustments.
Trim the Fat
Where is the best place to start when looking to tighten your budget?
The stuff you pay for but don’t use.
Take a look at your credit card or bank statements and find any recurring bills for things you’re not using. You may have forgotten about some of them if you pay them automatically!
When I did an analysis of my own finances, I realized I was paying for a Dailyburn fitness membership that I hadn’t used in months!
You might find a membership service you haven’t been using. Or maybe you’ll see how much you’ve been getting charged for that stack of unread magazines under the coffee table.
Also pay attention to paid memberships that have a free version you could use.
If you use a paid music streaming service like Spotify or Pandora, ask yourself if you can get by with the free version. Are you using all (or most) of the added features in the paid version? How often?
Eliminate spending on the stuff you already don’t use. You won’t even feel a pinch.
Recurring Bills Add Up
So you’ve trimmed the fat in your budget. What next?
Assess your regular monthly expenses to see where you can shave off some spending. Recurring bills add up over time compared to one-time purchases.
Spending $600 all at once makes you think twice. But spending $50/month on something doesn’t sound crazy. That is, until you realize you’re spending $600 a year for it. If you automate those payments you may be overlooking some serious moolah.
Here are a few ideas:
TV / Internet
Call your service provider and ask for a lower price. Many providers are willing to give you their latest promotion or a lower rate simply because you called to ask.
(If you’re willing to up the ante, think about eliminating cable TV altogether. Streaming services like Netflix and Hulu can fill most of your TV watching needs!)
Examine current rate plans to see if there is one that better meets your needs. Mobile phone providers switch up their plans every so often, so there may be a new one that is a better deal for you.
If possible, connect your phone to WiFi at home and at work. These are the two places where you use the most cellular data because that’s where you spend the most time. You may be able to downgrade your data plan by making this easy switch!
Also, like TV and internet service, your mobile phone provider may lower your rate if you request it. It doesn’t hurt to call and ask!
Car Insurance and Homeowner’s / Renter’s Insurance
When was the last time you shopped around for car insurance or homeowner’s insurance?
Get quotes from other companies (and from your current insurance company). Do this every couple of years to ensure you’re getting the best rate. Check to see if bundling your insurance coverage (auto and home) can get you a better deal.
Also get quotes if your life circumstances change (you buy a house, get married, move to a different state, have a baby, etc.). You may be missing out on some discounts.
Find Your Weaknesses
What else can you target when trying to reduce spending? Look for the non-essential items in your credit card or bank statement where you’ve spent more than you realized.
Let’s use my budget as an example. My biggest weaknesses are food and booze. (I’m all about transparency here, friends.)
The first time I analyzed my budget was after working full-time for a couple of years. I didn’t have my mom’s budget mindset guiding the way anymore. The amount of money I found I was spending on restaurants and groceries was appalling.
I recognized the need to cut back in these areas. So the first thing I did was to limit the number of meals per week that I would go out.
I was still able to enjoy my food and booze habits, but made my restaurant trips less frequent. I didn’t have to cut out restaurants entirely to reduce my spending enough to make a difference.
As for the grocery store, I came up with a three-part approach to reduce my spending:
Make a list and stick to it. This limits impulse purchases as well as food waste later in the week.
Don’t Shop When You’re Hungry!
Shop at a Smaller Grocer
Fewer choices in the aisles means spending less. If you don’t see 200 different types of cereal you won’t be tempted to buy a bunch of different kinds.
It Doesn’t Have to Hurt
Budgeting has a bad rap for being a painful process, but it doesn’t have to be! As you analyze your spending, pick out the expenses that have the greatest impact on your happiness.
When I analyzed my own budget, I found that I was spending a big chunk of money on yoga. Yoga classes aren’t cheap–a single class can cost you $20, and memberships are upwards of $100/month.
Despite the cost, I see a huge impact on my mental health when I regularly attend classes. My stress levels drop and my general state of well-being improves.
I’ve started thinking of my yoga expenditures as a cheaper alternative to therapy sessions. Think about it–I could spend $100 for one hour with a psychologist versus $100 for five yoga classes. Makes sense, no?
The takeaway is you don’t have to cut back on everything to make positive change in your budget. Keep taking that photography class if it’s your creative outlet. Don’t give up your weekend camping trips if they help you unplug and decompress.
You can hold onto the things that bring you joy. Cut back elsewhere.
How do you plan to trim your budget? Share in the comments!
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