Sunday, December 4, 2011

Adjusting Expenditures Part 2

We now continue with adjusting expenditures in the remaining budget categories.

Insurance
This category may be difficult to reduce. You really need most of the types of insurance mentioned before in order to avoid debilitating debt should tragedy strike. Even so, with diligence some cuts should be possible. For instance, you might want to cut back on the amount of life insurance you have on family members. Some life and health policies allow discounted rates for people in good health. By exercising more and eating better, you might be able to qualify for these discounts. As a “side” benefit, you’ll feel better, also. By shopping around, you may find another insurance company that is cheaper than the one you currently use. A combination of these suggestions could get the cost of insurance down from $400 to $350 per month.

Debts
If at all possible, you don’t want to reduce your allotment of money for paying off old debts. Instead, you want to increase it to pay them off faster. For now, just leave the amount at $200 per month.

Cover Art

Personal
Whether you like it or not, you’re going to have to reduce the amount of money you spend on yourselves and your children. To become financially secure, such sacrifices are needed. Try cutting your monthly expenditures on each person in half; from $200 per person per month to $100. No, you won’t be able to buy new clothes as frequently or go to as many movies, but in the end you’ll be better off. Perhaps the family can stay at home and play games rather than going to a movie or a concert. Be creative, and cut that spending.

Miscellaneous
Since this category is for unaccounted for and unexpected expenditures, it will be difficult to know how much the allocation for this category can be cut. So, just leave it at $50 per month.

Credit Cards
If there is any category not to cut, it is this one. Most likely, your credit card debt is costing you more in interest than any other debts you have. Why pay all that money in interest when it could be used for buying things to better your family. You really want to pay your credit cards off as soon as possible. But, given there are other things you also need money for, there is only so much you can do. So, for now, leave the allocation for this budget category at $500 per month.

Savings
So, how did we do? With these reductions in your budget categories, how much money will you be able to save each month? The table below shows the original budget alongside the new numbers.


Wow! Can you believe that we were able to cut your monthly budget by over $1000 per month? With those cuts, you can now begin to save almost $300 per month rather than going further into debt to the tune of almost $800 per month. That is tremendous. And to make all these cuts more palatable, let’s look at how your finances will look in five years after paying off your credit cards and other debts (except your mortgage), assuming your income remains constant.


Again, Wow! Once you pay off your debts, you will be able to start saving almost $1000 per month. What would you do with an extra $12,000 each year? You’ll probably want to up your mortgage payment to get it paid off faster. You’ll also probably want to increase the amount of personal money you have available as a reward for a debt reduction job well done. Just don’t go overboard with these increased allotments. You don’t want to get back in the same financial condition you just worked so hard to get out of.

Next, we will discuss how to set up a spreadsheet for easily handling your semimonthly budget.

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