Going by archaic rules on what you should spend in your budgeting categories doesn’t work. It can actually keep you from saving money and accomplishing your goals. For instance, those of us who live in NYC spend a much higher percentage of our budget on our rent, but we spend much less on transportation.
Use These Tips to Understand Your Budget Priorities, Make Easy Budget Cuts, and Figure Out Your Budget Priorities:
Take care of current emergencies first.
It’s hard to focus on evaluating your budget when you have an immediate problem, such as mortgage payments that are overdue. Ask for extensions on bills that are past due. Just notifying them can often prevent foreclosures, evictions, or credit card charge-offs. If you have federal student loans ask for a forbearance, so you can afford your other bills and have time to change up your budget.
Look through your budget for expenses that you can cut.
If you don’t go through your bank and credit card statements on a monthly basis, you may find surprise expenses. But, not every unexpectedly high expense is negative. For instance, you may look over your bill and you’re spending $10 per day on coffee and $500 monthly on dining out. You think about your expenses and realize you really enjoyed your lattes, but a few of your dinners out weren’t worth the price. Go through your bank statements and write a “W” for “worth it” or “NW” for “not worth it” next to each item that wasn’t a fixed expense, such as an electric or cable bill. Then work on how to change the prices of the items that weren’t worth it.
Involve the whole family.
If you cut expenses and the rest of your family doesn’t, you haven’t done much to change your financial situation. Have a conversation with your entire family about budgeting. Your spouse may need to adjust his or her budget, too, and your children will learn helpful tips for budgeting for their future.
Trim fixed expenses.
Trimming fixed expenses can be easy stuff, like comparing auto insurance quotes or more complicated tasks such as negotiating or choosing new housing. The good news is that this is an easy way to trim expenses without costing yourself any joy. For instance, I’ve had friends that were stressed about their finances, and I told them to compare auto and home insurance quotes. They saved hundreds per year without adjusting their lifestyle at all. If you’re looking for a new apartment, use a rental agent—they can negotiate your rent for you. If you plan to stay in your current home, call neighborhood apartment communities and compare prices before discussing your own rent for your next lease. If you own your home, this fixed expense will stay the same unless you refinance.
Reevaluate your budget in a month.
Budgeting, especially when budgeting based on your personal priorities, may take several months to fine-tune. Redo this process for at least a few months to create a budget for the lifestyle and financial future you want.