In the last post it looked like things were pretty bad. Living at the standard we would like was going to put us further in debt to the tune of over $9,000 per year. NOT GOOD! Our goal is to pay off debts while still putting money into savings. This may seem like an impossible task, but it really isn’t. Yes, you may have to make sacrifices you don’t really want to make, but if that is what is needed, plan to do it. You may find that it is not as bad as you might think. So, let’s put on our thinking caps and tackle each budget category in turn.
Charity
If need be, the charity budget could be reduced to zero without having to change your lifestyle at all. However, most people we know want to support causes they believe in if at all possible. Therefore, let’s hold off on reducing the money in this category. If we find out later that our budget will only work by reducing charitable giving, then we’ll make an adjustment.
Gifts
While it is nice to be able to buy our friends and family nice gifts at special occasions, I believe those close to us will understand if we cannot do this while we are trying to get our family finances in order. There are a number of things you can do to reduce expenditures for gifts. You might try making gifts yourself rather than buying them. Or you might give part of your charity money to an organization your gift recipient likes and then give them a card saying that you have made a donation in their honor. At Christmas, you might want to see if your family is willing to draw names so each family member only buys for one other family member rather than everybody. We have personally agreed in our family to only buy for children, thus eliminating the cost of buying for adult family members. I’m sure you can think of other creative ways to reduce the cost of gift giving. We should be able to cut the money in this category in half; from $80 to $40 per month.
Mortgage
You really don’t want to decrease payments towards your house. And even if you did, it may not be possible according to the terms of your contract. If at all possible, you want to increase payments towards the mortgage so as to save money on interest. However, as we stated before, don’t increase this payment until you have totally paid off other higher interest loans. Of course, if you are holding an older mortgage, it may be worthwhile refinancing your house if you can get a new loan with a significantly reduced interest rate. We have heard that after rolling in the closing costs for the new mortgage, the new interest rate needs to be about 2% less than your existing rate for the switchover to save you money. However, keep your eyes open. Sometimes you can find loans for refinancing that have very low or nonexistent closing costs. For the purposes of this exercise, however, let’s assume the mortgage payment needs to stay at $500 per month.
House Upkeep
There are some upkeep items, such as essential repairs, that simply cannot be eliminated from this category. However, some things can at least be delayed. For instance, you can live with that scuffed up wall a bit longer, thus saving the cost of painting. Those spots on the carpet can be covered with a rug rather than paying the cost of professional cleaning or replacing the carpet outright. We may not be able to reduce the budgeted amount for this category much, but it can be reduced some. Let’s lower the amount from $100 to $75 per month.
Home Decorations
Since this category is a nicety rather than a necessity, it can be eliminated altogether. Sure, your home may not look as nice as the Jones’ house down the street, but your finances will look a lot nicer. Just so you can feel like some minor improvements can be made, we’ll not totally zero out this category, but we will greatly reduce it. From $50 to $10 per month.
Utilities
Some of these costs are not adjustable, such as garbage collection and sewage. Usually these costs are a set dollar amount per month. However, other things such as water, electricity, and gas, where you pay based on usage, are more under your control. There are several things you can do to reduce usage. You can increase the temperature in your home in the summer and decrease the temperature in the winter. Try using fans in the summer and blankets in the winter to compensate. You can also close off vents in areas of your house that are used infrequently. Perhaps your hot water heater could use an insulating wrap. Perhaps you can reduce the amount of water used on your lawn by targeting problem areas while cutting back in other areas. Maybe you can bathe less frequently and wear your clothes more before washing them. There are a lot of things that can be done to cut the cost of utilities. Surely with all these options we can reduce our utility costs from $250 to $200 per month.
Communications
In reality, we could get rid of our TV service, all our phones, and our Internet service and still be able to survive. It might be difficult, but not impossible unless your work depends on these services. So, not to be too harsh about this, let’s look at ways to reduce these costs rather than eliminate them altogether. Many people who use cell phones have eliminated their land line phone. That’s one way. Also, if your family is using smart phones, you might want to drop back to a regular phone to save the cost of data services. You might want to drop back to a lower tiered plan on your TV service. Yeah, you might have to give up a few stations you like, but why pay for 100 extra channels just to get a few that you watch if it’s going to cause a family financial crisis. Also, you might change to a lower speed Internet service to save a few bucks. Before making any of these changes, be sure to see if your contracts require you to pay a penalty. If so, see if the company providing the services will work with you after explaining your financial situation. If it’s going to end up costing you more to reduce your services, then there is no need to do so. You should be able to get your $400 per month budget down to $200 per month without too much pain, even if your teenagers may disagree.
Food
If you are frugal, you can get by with a lot less money for food than you believe you can. It should be possible for you to reduce the money in this category from $600 to $450 per month, which is what we discussed before. This amount allows for $5 per meal for the entire family and three meals per day. If you eat cereal for breakfast and sandwiches for lunch, these meals can come in under the $5 amount. This would allow for more expensive evening meals. Of course, you can mix and match any way that best suits your family’s lifestyle. If you are really frugal, you might even find that you can eat out occasionally. Some things you can do to reduce food expenses is to look for sales and stock up when really good prices are available. Although the initial cost is a bit high, you might want to invest in a vacuum sealer. This allows you to purchase large quantities of meat when on sale and then seal it so it lasts longer in the refrigerator or freezer. Also, you might want to take lessons from extreme couponing people. We have seen people on TV who are able to buy hundreds of dollars of food for just a few bucks. It’s still a bit of a mystery to us, but it’s apparently possible. Of course, you have to be willing to eat what you can get cheaply via the coupons, but it should be well worth the effort.
Medical
Since this is such an unpredictable category, you should be hesitant to reduce the amount budgeted for it. So, just leave it at $200 per month.
Transportation
Transportation expenses may be hard to reduce depending on your primary mode of transportation. If you use public transportation frequently, it may be difficult to reduce these costs. However, if you drive your own vehicle, you might see if you can carpool several days a week to reduce expenses. If this is not feasible, perhaps you and your spouse can team up, given that it’s not too far out the way to do so. If your family takes weekend trips frequently, you might try taking shorter trips or eliminating some of them. With some of these changes, you should be able to reduce transportation costs from $600 to $500 per month.
In the next post, we'll make adjustments to the remaining categories and take a look at the new numbers to see how we have done.
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