- May 26, 2020
Part 2 of 2-part Budgeting Tips Series
What should you cut? What shouldn’t you touch?
Earlier this month, I shared my advice about budgeting tips — why it’s important, why it’s less scary and limiting than you think, and how to get started. As we face the uncertain times ahead that COVID-19 has only begun to show us, it’s more important than ever to get a clear sense of our finances and prepare for the worst.
Once you’ve got the facts in front of you with your newly created budget, and you know exactly how much money is coming in and going out the door, now it’s time to make some decisions. If you’re fortunate enough to be making more than you’re spending, you should be looking for ways to save the excess. But if you’re like most of us and living beyond your means, don’t beat yourself up. You aren’t alone. You’re already in more control and headed toward better financial health.
Here are my budgeting tips for cutting expenses and bringing spending down to a manageable level.
Start Trimming the Fat
Where can you make spending cuts? Chances are, a few cuts here and there will make a big difference, and they won’t be as painful as you’d think.
Perhaps you can carry our current norm of dining at home a bit more into the future, allowing you to curb some of that restaurant spending. And now that you’re drinking most of your coffee at home, maybe you realize that your afternoon latte can be an occasional treat, not a frequent habit. What about the baby magazine you’re still receiving, now that your “baby” is 11, or the magazine you’re getting that you’ve never read? Maybe now that you’ve had to miss your bimonthly manicure, you realize you could probably do your own nails from now on and save that $100+ a month. Or maybe your Disney+ subscription isn’t worth the one show you’re watching on it. The point is to identify expenses that aren’t necessary. Many of these things cost very little each month, but when added together, they come to hundreds, even thousands of dollars that could be put to better use. These are small budgeting tips that can make a big difference.
Of course many expenses are not optional. Food, shelter, utilities, a vehicle, and gas … these things are vital to our survival. Pay those things first. You must have food to eat, a roof over your head, electricity, water, and a ride to work.
That said, however, it’s also important to point out that those expenses can be lowered. Eating at home is less expensive than eating out, for sure, but some stores may also be less expensive than others. Take note of how much food in your home is wasted; perhaps you can buy less at the store to ensure more is eaten. Not that you should restrict yourself to a diet of rice and beans, but look for ways to trim spending on your food items — buying generic brands, for example, or only paying with cash to prevent you from impulse buying.
The bottom line here is that if you’re struggling to afford even these most basic of needs, and cutting your other spending still doesn’t help, it’s time to take further steps to negotiate some lower living expenses. Your main goal, especially if your income for the near future is uncertain, is to conserve cash until you know you’re in a safer position.
Once you’ve cancelled unnecessary expenses, it’s time to play hardball and start negotiating lower payments on the necessary ones. Consider the following:
- If you rent, talk to your landlord about options. In the midst of the COVID crisis, many landlords are accepting partial rent payments, waiving late fees, or even waiving rents altogether. Perhaps yours can work with you. You should know, however, that a federal freeze was placed on evictions due to the pandemic, so rest assured you won’t be thrown out in the cold as this crisis rages on.
- If you have a mortgage, there may be resources available to help you. The Federal Housing Finance Agency has rounded up a page full of COVID-19 information and resources regarding mortgage assistance. Talk to your lender about your options.
- The stimulus package enacted by Congress provided student loan holders a six-month break from payments. If you currently owe student loans, this is a great opportunity to save that money and put it toward other debts. No interest will accrue during those six months. After that six months is up, it may be possible to qualify for a hardship forbearance, which allows you to pause payments during times of financial hardship (although interest may accrue). Talk to your lender about your options.
- Now may be the time to look for a better interest rate on your credit card. Call your creditor to ask for a lower rate, and if you can’t get one, maybe it’s time to shop around for a lower-rate card, then transfer your balance to the new card to lower your overall balance. Then look at paying down that debt, even if it means paying only the minimum each month and not adding to the existing balance.
Most creditors realize that something is better than nothing. If you find you’re unable to make a full monthly payment, let them know ahead of time and try to work out a payment plan. This can keep bill collectors off your back and help you stay in good financial standing as you get through this rough patch.
It’s important that every budget includes payments to yourself in the form of savings. I’ll talk in more detail in my June blog about savings tips, but you should make it a priority to put some money away each month into savings, even if it’s only $50. Work to build up an emergency fund of at least $1,000 so that you can deal with unexpected costs like car or home repair without breaking your budget or dipping into credit cards.
Money isn’t just for paying bills. We work hard and should be able to enjoy it, so by all means, budget a certain amount of money each month for discretionary spending. Knowing you have the freedom to spend a certain amount each month on whatever you want is a wonderful feeling and makes other limits easier to accept.
And if you can afford to save a lot more money, do. In this time of great uncertainty, it can be reassuring to know you’re putting money aside for the future, and encouraging to save for that trip you will eventually be able to take.
In the end, you’ll be surprised by how empowering it can be to create a budget. When you know that every expense you will encounter is accounted for and that you can live within your means, you will feel the opposite of restricted: You’ll feel freedom, and you’ll be relieved to know you have some control in a world that often — especially right now — feels out of control.
All of us here at Ludmila CPA are happy to help you get started with your budget, whether it’s recommending tools, helping you make ends meet, or setting financial goals. Contact us today to see how we can help. Hang in there, utilize these budgeting tips — we’ll get through this together.