There are a number of life events that force you to cut your budget. You may want to just save some extra income for a house, a new car or a holiday. Alternatively, you may have been hit by some unexpected events such as ill health or the loss of a job.
I can tell you from experience that if you cut your budget you can make a significant impact on your finances.
By making sharp changes to my spending habits, I was able to pay off $5,000 of debt in just 6 weeks. Cutting your budget works!
It’s not hard to cut your budget once you understand where to start. I can guarantee the results will put more money into your pocket.
Start with a budget
If you don’t already have a budget then I encourage you to sign up to my mailing list. Sign up and confirm your email to receive free access to my budget planner spreadsheet. Keep a budget helps you understand your finances better.
If you are new to budgets, I encourage you to read these posts. They will explain how a budget works and the ways in which having a family budget can benefit you:
- What is a Budget Plan
- How to Make a Budget Planner
- How a Simple Family Budget Paid Off $5,000 of Debt in 6 Weeks
It’s pretty hard to know how to get started when looking to cut back on your expenses. This article will explain how to approach it and give you some ideas on where you can make necessary changes.
Cut your budget early
The most important advice is to start early.
If you need to cut your budget because of unexpected events, such as losing your job or a health problem, you need to take control as soon as possible.
If you are due to have a baby or you are saving for a house, a car or a holiday, then starting early will help you reach your goal faster.
Cut your budget where you can as quickly as you can.
If you’ve created a budget planner then you’ll have a section that will outline all your expenses, either monthly or weekly.
To identify where to cut a budget consider the two major types of expenses.
When you cut your budget it is best to start with variable expenses.
These are the expenses in your budget that change on a regular basis.
Examples include grocery shopping, eating out, entertainment, travel expenses, and utility usage.
You generally have more control over these types of expenses.
A good budget plan will categorize expenses. This should make it easier to identify variable expenses. Categories would likely include eating out, travel expenses, clothing and entertainment.
Placing your expenses into categories shows you how much you are spending each year. You may even shock yourself at how much you actually are spending in certain areas.
Once you have this visibility you need to consider which expenses are non-essential.
The tougher you are with yourself the more money you will save.
My free budget spreadsheet works like a cash flow forecast. This aids you in setting a financial goal and you work backward through your budget to ensure you achieve it. You do this by continually trimming your expenses until you meet your goal.
For example, if you are spending $200 a week eating out and want to save $5000 over 6 months, you cut down your expenses each week by an amount that works. The budget planner spreadsheet will then show you the impact this has on your bank account in the future.
If you’re not going to meet your goal by trimming this single expense you can cut back on other expenses.
You may be hesitant to cut your eating out budget completely, even for a few months. So you could halve it and make small tweaks to other categories to compensate. For example, reducing your travel expenses by $10 a week, or your grocery budget by $20 a week.
You just keep making these adjustments until you see the $5000 in your account on the date required.
If you lost your job or feel that you may lose your job you can adjust income figures to reflect the change. You’ll get immediate visibility of the impact on your finances. You’ll be able to gauge exactly when you’re going to run out of money.
By cutting your expenses you’ll know how long you can keep afloat before needing to find income.
The degree to which you cut your budget depends on your circumstances or your desire to reach your financial goal.
Extreme circumstances or a strong desire should mean that you cut back intensely. Expenses like eating out, entertainment, cable TV should be slashed entirely.
Other areas you can cut your budget include your food and grocery bills. Preparing cheaper meals, planning shopping and reducing portions helps reduce spending in these areas.
You could buy food in bulk and freeze meals. For example, I often buy a large portion of minced meat and divide it up into 4 portions to freeze it. I sometimes cook two meals at once, or one large meal, and freeze it to make an easy microwave meal.
One area my partner and I have made significant savings is to have “eat up nights”. We take a look at what’s left over in the fridge and use it up. It helps us reduce food waste and cuts our food budget.
You can also cut your budget by being more conscious of your electricity, water, and phone usage.
I can still remember my Dad always complaining about us leaving the lights on and switching them off. I laugh about it now because I promised myself I’d never be like that. I did, though.
You’re going to become my Dad!
Turning off unused electrical items at the socket really add up over the course of the year.
Once you’ve adjusted your variable expenses, which are easier to control, you should manage your fixed expenses.
Fixed expenses are generally less controllable because they are tied to some sort of contract.
Some expenses such as utilities have a fixed and variable element to them. Your phone line is a prime example which may include a fixed charge for line rental and a variable usage rate. Electricity bills are similar.
You can control your extra variable expenses on this bill by cutting down your usage.
You could reduce your fixed expenses by renegotiating with your supplier or switching provider.
Some utility providers offer incentives, such as credits, if you switch. Your current provider may not wish to lose you as a customer and you can use this to your advantage. It’s worth shopping around and playing your existing provider off against a competitor.
Don’t be afraid to try to renegotiate by asking your current provider to match another offer. At the end of the day, you can’t lose out, the worse that can happen is they say no and you make the switch. This can be an extremely effective way to cut your budget!
If you have cell phones consider whether you can cut down the amount of phones you have. Perhaps even go down to a prepaid plan. Do you have phones for the kids? Can you force them to share a phone? I know we all find it hard to be without a cell phone these days, but desperate times means desperate measures.
If you have car or home insurance then search around for cheaper providers. Insurance is a competitive market and it’s likely you can get a better deal to switch providers.
If you need to save money or find extra income the most effective way to put money in your pocket fast is to cut your budget. The biggest benefit to the approach above is it gives you immediate results.
By using my cash flow budget, provided free when you sign up to my mailing list, you can cut your budget to meet a goal. There is no greater approach to hitting a goal than setting it and forming a plan by working backwards.
The best way of approaching your expenses is to view them as variable and fixed expenses. Manage variable expenses first, as they are easier to control. Then make cuts based on the needs of your goal or circumstances.
Have you ever had to cut your budget? Which expenses did you find particularly easy or hard to cut back on?