In the last blog post, we covered what exactly a budget is – the decisions you make about how you use the money you receive. Now let's look at some relatively pain-free ways you can tighten your expenditures during tight economic times.
Before you can look for ways to tighten up the outflow of money, you need to first be aware of how your money is being spent. In other words, you need to write down what you are spending in a month. Whether it is a color-coded computer spreadsheet or written on the back of a napkin, having a visual representation of what you spend and what you receive makes it harder to ignore when you are about to spend more than you receive.
Once you know what it is you are paying out, you can then start thinking about ways to trim the money that goes out. Some items are set, and there is no way to trim them, such as your monthly rent, the minimum balance on a credit card, or the cost of a storage unit. Most items in a budget are not set in stone, though. When looking for ways to decrease expenditures, one of the most common recommendations is to start with the power bill. When I was a child, I remember seeing commercials on TV and billboards on the side of the road about ways to conserve energy (turn off the lights when you leave the room!). In the high-tech world we live in today, while turning off lights when you leave a room is still a good way to save money on the power bill, another way is to unplug all those cords from the wall when they are not recharging your phones and computers. Unplugging appliances and equipment when you are not using them can make a small but significant dent in your monthly power bill because as long as something is plugged into an outlet, it is drawing power.
While practicing energy conservation can help drop your power bill, an even more helpful budgeting tip is to check with your power company to see if you are eligible for an equal payment plan. Before equal payment plans were a thing, I remember dreading seeing the monthly power bill, because there was no way to determine ahead of time how much it would be that month, so I could not really budget for it.I could guess, but when November hit and I was trying to figure out how to buy gifts for Christmas, having the Duke Energy bill come in a hundred dollars higher than it was the month before meant choosing between power or Christmas gifts. Duke Energy has a budget billing plan that creates a set monthly payment based on the average of the last quarter’s or last year’s payments. This makes creating a budget much easier because you know how much to budget for your power bill on a monthly basis. The monthly statement will keep track of how much over or under the average you are through the year—at the end of the year, you may end up owing a little more than your normal monthly payment if you used more power than you paid for through the year, or you may receive a credit towards your next bill if you end up using less than paid for.
Next, it is time to get a handle on convenience spending. In a recent publication, Lending Tree noted that 77% of Americans used delivery services in 2021, with an average of $2000 a year being spent. 29% of that 77% admit they overspend on these services. Food delivery services (for example, Uber Eats, Door Dash, Grub Hub) and instant money transfer apps (Cash app, PayPal, Venmo, etc.) that are used to pay for many of these kinds of services are often signs of convenience spending when you look at your bank statement.
To tighten this kind of spending, you first need to include in your budget the cost of eating food prepared by a restaurant as a separate item in your budget. It is usually more expensive than food you pick up in the grocery store, and to see the difference between grocery bills and restaurant bills on paper may be all the incentive you need to start cutting back. Then, save yourself some money by avoiding the extra fees of food delivery. If you are not inclined or able to make dinners at home, choose restaurants that have drive-thru or curbside pick-up, order dinner in advance through their online app, and pick it up on the way home from work.
Likewise with instant money transfer expenditures. First, determine what your cash app-type expenditures are going towards. Is it food? Hobbies? Bill payments? You may need to categorize the money transfers that you make through apps to help draw a clear picture of where your money is being spent (remember the detective voice from the last blog post?). Once you know where the money is being spent, determine which expenditures are wants and which are needs, then make sure you have it included in your budget.
Another budget eater that we are hearing a lot about in the news lately are Federally Funded Student Loans. If your payments are more than you can afford right now, contact your student loan provider and apply for an Income Driven Repayment plan.
These payment plans are based on your income and are re-evaluated every year. For the short term, in order to free up some space on a tight budget, this may be a great option for you- your payments can drop as low as 0, depending on how much you are earning. Freeing up those extra dollars can make all the difference. Just remember that interest is always accruing on student loans, so the longer it takes to pay them off, the more your balance is accruing interest. However, if you are in a place where you are having to make choices about what bills you are going to pay and what ones you are going to have to be delinquent on, then it is worth the time to reduce your student loan payments until you are in a better place financially.
Finally, a major part of the budget is recurring monthly payments: There are two types of recurring monthly payments. The first type is for subscriptions. It is really easy to add subscriptions into your day-to-day expenditures and forget to include them in a budget because the amounts are often minimal. $5.34 for Paramount+, $16.04 for Amazon Prime, $17 for Netflix, then the more substantial subscriptions of $65 for Disney Plus or YouTube TV. Maybe you have a news app that charges you a small monthly subscription rate, or a weight loss app that you pay for on a monthly basis. Then there are the music and game apps on your phone or computer. In-app purchases that you make in the heat of the moment in order to level up or beat a “boss” may seem like they are insignificant, but those one or two-dollar purchases can add up really quickly over the course of a month.
TV subscriptions: When times are tight, it is easy to fall into a mindset of “I need or deserve to have my entertainment system” because it provides comfort and escape from the stress and anxiety of life. However, for budgeting purposes, if you can’t pay the power bill, then the streaming apps are going to be of no use. You will continue to get charged for the app whether you use it or not. A good compromise for entertainment apps is to try eliminating all but one, and then when you are not finding anything new to watch, cancel the app and replace it with a different one.
Other apps: As for the other purchases like in-game purchases, set a budget for your purchases. If you can’t find room in your budget to set aside an amount of money for game purchases, then this may be the wake-up call you need to stop making purchases in games. Maybe your budget only allows you to spend $20 a month for purchases in your online games, and you have been spending double or triple that. By budgeting $20 and then purchasing a gift card (Google Play, Apple, etc.) that will cover expenses you make in the game, you can load the gift card onto your gaming account (Google, Apple, etc) and remove your debit or credit card. This way, when you hit your budgeted amount, you cannot make any more purchases until the next month. It is an especially effective way to control purchases if you have kids who are playing games and charging on your card, and it provides at least one less place online where your debit/credit card can be hacked.
The second type of recurring payment is for revolving and installment credit.
Revolving credit is typically in the form of credit cards or home equity lines of credit. You are given an amount that you can spend, and you can keep paying it down and then reusing the balance. Installment credit is where you are given an amount that you are paying down to $0; vehicle loans and home mortgages are examples of installment credit. The amount you borrow is for a specific purchase, which you commit to paying back within a specific amount of time. In both cases, you are expected to make a minimum monthly payment as long as you have a balance on the account. Other examples include purchases you may have made where the store provides financing- furniture, mattresses, cell phones (which are often added into the monthly phone bill), and online purchases where you can pay for your purchase over multiple months.
In the case of ANY type of monthly payment you make- credit-related, loan-related, or service-related (power, water, internet), there is a CRUCIAL piece of information you need to have and follow in times when you do not have the funds to make a payment. It is a simple step, but most people either don’t think of doing it or talk themselves out of doing it and because they don’t do it, they end up going deeper and deeper into debt. Here it is:
If you find that you are not going to be able to make a payment on time or you realize that you are not going to be able to make the amount that you had agreed upon, CALL the company and let them know. Tell them how much you CAN pay this month, or if you are not able to pay anything, let them know that as well, and tell them when you will be able to resume making payments. One simple phone call - as uncomfortable as it may be to have to say, “I am short of funds this month”- can be the difference between late fees, services being shut off (and then additional charges to having services restarted), and drops on your credit score.
If the financial institution holding your credit doesn’t hear from you, then it assumes the worst. It assumes you are walking away from your debt and it moves to try to recoup its loss by sending your debt to a collection agency. If the financial institution hears from you, it shows that you are trying to fulfill your responsibilities. There are very few businesses that will not work with you if you call and tell them you are facing legitimate financial hardship. They have options- they can move your payment date, accept a partial payment, work out a new payment plan with a lower payment, reduce the interest rate on your credit, and in some cases, allow you to skip a payment. In short, making a phone call can help your budget and reduce financial worries in the short run and save your credit score in the long run.
So, it’s time to get that bank statement out or find it on your banking website and take the plunge! Look it over-- itemize it, discover just how much you are spending and where you are spending it in a month, and then build your budget. When you start taking control of how you are using your money, you give your money (and you) purpose, and you start taking steps to a brighter financial future. And if you are feeling a financial pinch in the current economy, reviewing your bank statement helps you make choices about where you want to make cuts, rather than letting creditors, lease or mortgage holders, or utilities companies make those decisions for you.
Stay tuned! Next time, we will look at the other half of the budget equation--income!