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Five Painless Ways to Cut Your Budget
Give yourself a personal-finance makeover with this easy-to-follow plan.
From nervous penny-pinching to cathartic impulse spending, the decisions we make at the cash register are based more on our emotional state than on the state of our finances. Here, a five-step plan to organize your finances and help you make rational choices.
1. Follow the bucks. Getting a handle on your household spending habits starts with figuring out where your dough goes. Free online budgeting tools such as Mint.com and QuickenOnline.com give you an instant three-month snapshot of your household cash flow when you export your bank and credit-card transactions from the past 90 days.
2. Identify your biggest budget-busters. Don’t get mired in tracking the details of every dime you spend. Instead, sweat the big stuff, by honing in on the priciest three to seven spending categories. Those tend to be food, transportation, housing, entertainment-related costs and infrequent but large expenditures, such as insurance premiums, medical care and taxes.
3. Set your new spending limits. Now that you know how much goes out every month, it's time to rein your expenses in. Set new spending targets for three to seven of the major categories you’ve identified. Base your cuts on either a dollar amount you’d like to save each month or on a percentage (for example, 15% less than what you typically shell out in a month). Divide those monthly numbers by four to set your weekly spending limits for each category of expenditure.
4. Give yourself an allowance. A simple, but highly effective, cost-cutting tactic is to physically limit your splurging power: Label individual envelopes with everyday spending categories (for example, “coffee/lunch/snack money”) and stuff them with a week’s worth of cash. The amount you put in each envelope represents your new spending limit. (You can also do this on a daily basis if you don’t want to carry too much money at one time.) Leave the credit (and debit!) cards at home, or at least promise yourself that you will use them only for actual emergencies. Why does this work? The visual reminder of the actual cash you have left to spend is a powerful one, requiring you to assess the damage you're going to do before you get to the checkout counter.
This trick works wonders. Consider how much you could save on food alone: The average American family spends 12.3% of its money on food — both at home and in restaurants — according to the Bureau of Labor Statistics’ Consumer Expenditure Survey. Cut back by 15%, and you’ll save more than $900 in savings in one year.
5. Set a date to do some savings homework. Mark your calendar with a formal “Save Money” date. Use this time to research ways to cut your car and homeowner's insurance premiums (for more information, read Dialing for Dollars) and to review your health coverage for ways to save (such as filling your prescriptions by mail). Also, spend a few minutes of that time to get your tax refund right now by cutting off the free loan you're giving Uncle Sam. (Last year the average tax refund was around $2,300.) If you got a refund last year, use the IRS.gov withholding calculator to see if you should increase the number of exemptions you claim.
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I have to disagree with the tip to save money by reading the newspaper online. My tip would be to subscribe to the Sunday or weekend only newspaper and use the coupons and sales flyers to save money each week. The coupons MORE than pay for the cost of the newspaper.
I agree with Karenm67, I buy the sunday paper only, and it is 1.00 I clip the coupons, and in one afternoon, I went to Kmart, on their double coupon day, I spent a total of $184.00 and after using the coupons it actually cost me $60.00. I am stocked up on all my necessities for the next 6 to 12 months. Cindy
I was reading the advice on saving over $5,000 in a year. I do not agree with the use of a credit card to build you savings account. While you are putting money in a savings account you are also racking up charges on the credit card with the interest the debt will rise. Who wrote that, a representative of visa. Why not build the savings account and buy the shoes and leave the credit card out of it.
Unless you want the Sunday paper to read also (or to read the ads in that case) you can read the Sunday paper online and print and clip the same coupons that come in the Sunday paper online. It'll save you a buck fifty and then some.
To: denise3d7 What paper do you read online that you can print and clip the same coupons from that come in the paper? I don't believe that's possible for most of us!