Starting out: Where should you cut back first?
For a first time budgeter, cutting back on expenses can be daunting: where do you cut? why? how? and what is the best way to use that money?
I am here to suggest that you start with the hardest categories first, so that you get the hang of it & the rest will come as easy as pie.
FIXED VERSUS VARIABLE
Your expenses consist of fixed and variable categories.
Fixed Expenses: Anything you cannot change, and is a fixed amount per month to pay
- Rent
- Mortgage Payments
- Car Payments
- Home Insurance
- Car Insurance
- Membership Fees (such as the Gym)
- Public Transportation Passes/Tickets
- Home Telephone
- Cellphone’s Fixed Fee
- Internet Fixed Fee
- Credit Card & Line of Credit Minimum Payments
Variable Expenses: Anything that you can change (cut out or cut down) on a monthly basis
- Groceries
- Utilities
- Laundry (yes, you can choose to do less!)
- Eating Out
- Shopping
- Gas Expenses
- Traveling
- Cellphone Usage (Text messaging, Long distance calling, etc)
STARTING TO CUT BACK
If you can cut back on both at once, then kudos!
But if you started out slow like I did, then my best advice to you, is to track your normal spending for one month, formulate a budget out of what you spend, and start going through your fixed expenses.
Ask yourself questions like:
- Can I move to a cheaper apartment?
- Can I get a better rate on my mortgage?
- Can I get cheaper car/home insurance?
- Can I consolidate my credit card debt onto my mortgage?
- Do I really need a gym membership there?
- Can I cut down on my cellphone or internet plan? Or bundle?
Once you have figured out the savings in each fixed expense, multiply it by 12 (to represent a year).
That is your savings per year, and it can be surprising how $100/month is actually $1200 at the end of the year.
Once you get the hang of moving to a cheaper apartment, shopping around for better rates on your car and home insurance, you can easily tackle the next set of expenses: the variables.
So why cut fixed expenses first, over the variables?
1. You will already naturally control your variable spending if you are made aware of what you’re spending in general
So when you go to pick up something to buy on impulse, your monthly spending will flash through your head & you’ll think twice.
This doesn’t work on everyone (took 6 months to catch on with me), but eventually, if you start seeing small gains from a bit of hard work translate into big savings, you will begin to find ways to save in every category.
2. They are the hardest categories to cut back on because it means more work
Paying less in rent, means you have to either find a roommate to share with, or move out or finding a cheaper insurance means you have to spend time to check all the quotes.
3. They yield the most savings in the end
Once you cut back on your rent for example, you just pay the same amount every month and you can forget about it & save… times 12.
Page 1 of 3 | Next page
Related posts:
