Personal Finance Part 3: Where to Cut Back to Make Your Budget Work
by STAFF WRITER Credit Unions Online
Here we continue the budgeting topic that began with last week's Budgeting: The "B Word" of Personal Finance. The main purpose of budgeting is to live within your means, save money, eliminate high-interest bad debt, and still enjoy life. A budget is simply a tool to show you how to achieve your financial goals. Hopefully you have worked on a budget, now is the time to review that budget and see what areas you might be able to reduce or eliminate expenses.
There are certainly expenses you have incurred in the last month, when looking back, that you wish you had not purchased. Those impulse buys are one area where adjusting your behavior will have a profound effect on your budget. I'm not going to make the over-used suggestion to cutback on your over-priced morning latte or cappuccino. If you enjoy that experience enough to pay the nearly $100 per month, then indulge. Cutting back to make your budget work is not about sacrificing to the point that you don't enjoy the bright spots of your day. Cutting back on expenses is about finding substitutes for existing purchases that either cost less, last longer, or both.
[AD]Below are some suggestions to help get you started in finding ways to reduce your expenses. Your situation is not like everyone else's so some tips may help, but you will likely find specific items within your regular monthly expenses that you can find ways to cut back.
Avoid Most Name Brands - whether you are buying food, clothes, electronics, or a new mattress, name brands cost more for one main reason - the cost of advertising. A "Name Brand" is only a brand that is recognizable because the corporation that creates the product spends millions of dollars to get that name familiar to the general public through TV, magazine, internet, radio, and billboard advertising. Look for the name brand product, then look next to it or the shelf below. You will very likely find a product of equal or greater quality for less money, since that manufacturer did not spend millions to get you into that store aisle. Obviously, you can't choose another brand if you want Lady Gaga's last release, but you usually can avoid name brands and save a lot of money every month.
Boost the Energy Efficiency of Your Home - lowering your utility costs is an easy way to cut back without sacrificing. Start small by adding weather stripping, fluorescent bulbs, and a programmable thermostat. There will be an initial expense, but you will recoup your expense in a short period of time. If you plan on staying in your home for many years, look at upgrading your windows. This expenses is far greater, so make sure that investment is worth the savings, which will take longer to recover. Wearing a sweater in the winter is not a bad deal either, just don't buy a name brand sweater!
Review Your Insurance Costs - check your deductibles. If they are low, contact your insurance provider to have the deductible raised. Only raise it to the point that you can cover from savings if you need to file a claim. Don't rely on a credit card to cover the deductible, like car repairs after an accident, since that will only set you back further financially by increasing your high interest debt. Many people have low deductibles on their autos and most auto insurance websites only allow you to go up to $1,000 deductibles. However, depending upon your state laws, you can go higher. Call your auto insurance company and increase the deductible to $2,000, unless you have a habit of texting while driving.
Review your budget every month or every few months to see how you can adjust it. And, one last hint: keep all your receipts. If you have buyer's remorse about a purchase one or two weeks later, return the item. Even if you opened the product, take it back to the store. You might at least get store credit. Until you develop habits to avoid purchases you later regret, you will make mistakes. Returning items is one way to undue some of those mistakes.
Where have you found ways to cut back without sacrificing? Share your ideas with others so they can save some money too!