Making a budget and sticking to it can be one of the most difficult parts of paying off debt. It entails doing some heavy research into your own habits and cutting back on certain parts of your life you may not want to.
The good news? It’s not going to be as painful to determine where you need to cut back as you might think.
The Budget Review
Before you begin making a budget, analyze your past money behaviours. How much did you spend on housing, groceries, travel, and *gulp*… entertainment? Take time to calculate the percentages you spent and compare them to what financial experts recommend: 50% to “needs,” 30% to “wants,” and 20% to your financial goals.
Determining Where to Cut Back in Your Budget
Cutting spending is one of the first steps to taking control of your finances and getting out of debt. But there are always bills that seem necessary. Look at each item and decide if you can Remove, Reduce or Replace. Take that money and put it toward savings or debt.
If you take a look at your credit card statements each month, you may find a few subscriptions charging you monthly. It’s also likely that you probably don’t use each subscription often enough to warrant paying for it.
Common subscriptions include Netflix, Spotify, Apple Music, Amazon Prime, Crave TV, and special memberships for food delivery services like Uber. Do you really need both Crave TV and Netflix? You can save a few dollars each month by cancelling at least one streaming service.
Avoid pre-authorized payments. If you’ve been overcharged for something, it’s a lot harder to get them back if the funds have already been debited from your bank account.
Enjoy the Free Things In Life
Start cutting out expensive hobbies like going out to bars or impulse shopping online. There are so many free things to spend time doing. Visit a local library to borrow a book. Have a picnic in the park instead of in a fancy restaurant.
Go for a hike instead of hitting the bar. By changing some of your habits, you can discover new things and save a lot of money.
Workout at Home
Gym memberships are a healthy way to spend your money, but you don’t really need gyms to work out. You can work out from your own home by watching personal trainers on youtube and Instagram for free. Even if you purchase a few weights, the cost is still much lower than a monthly gym membership.
Put Extra Thought Into Your Grocery List
It’s easy to make impulse purchases when you’re hungry. It’s always a good idea to go to the grocery store with a full stomach.
Consider preparing a grocery list for each trip. This helps you stay on track and avoid spending money on junk food. It also helps you plan your meals. By sticking to a list, you can save tons of money at the grocery store.
Having an idea of what you’re going to spend paying with cash is another great way to control spending.
Drink Coffee at Home
Made popular by David Bach with his “Latte Factor”, the idea is that by eliminating these tiny transactions you make every day you’ll end up saving a ton of money that you could be putting towards debt or investing. If you’re used to buying a fancy coffee from Starbucks every morning on the way to work at $4 a pop, that’s $20 a week, $80 a month, and $960 a year.
Does that sound like a lot? It’s easy to justify it to yourself, but it’s just as easy to tell yourself that you could buy a travel mug for $20 and make coffee in the morning for pennies.
Slash Your Cell Phone Bill
Take a look at your contract and its terms and see if there’s a more suitable plan available that you can switch to. Canceling your data plan and using Wi-Fi when you’re out can save you a lot of money. You don’t need that new phone as long as the one you have makes calls. Figure out what you really need (NEED), and then find the cheapest place to get it.
Get Comfortable Negotiating
Negotiating is uncomfortable, but it’s an important skill. Knowing your worth helps you negotiate a salary or rate you’re happy with, and helps you earn more money. Similarly, you can negotiate the price of some of your purchases to save money as well. Negotiating is essential when you’re making a budget.
If you’re buying a new phone on Kijiji, consider haggling the price. If you’re a frequent customer anywhere, inquire about any loyalty or reward programs. You never know until you ask.
Compare Rates for Everything
In business, competition is everywhere. For any product or service you need, there’s certainly another provider offering the same thing.
Shop around and compare rates. Review phone plans, internet providers, and so on. Making judgment calls is essential, but it’s good to have a general sense of the market.
Diversifying Your Transportation Habits
Walking, biking, car shares, trains and buses can help cut down on transportation costs. And maybe replace your gym membership! But, being able to diversify your transportation habits hinges on one major factor:
Do you live and work in a location that lets you change how you get to work? If you are a two-car household and you and your spouse both require a vehicle to commute (as in, there are no public transportation options, and it’s too far to bike or walk) then it will be difficult to take advantage of the many alternative transportation methods out there.
Hit the Garage Sale
You never know what you’ll find. An amazing birthday or holiday gift may be hidden in someone’s garage. Similar to when you make a trip to the supermarket, you should create a garage sale list before you head to a yard sale.
It’s important to include spending at a garage sale as part of your family budget. Before you head to a garage sale, bring only the amount of cash you can afford to spend. The best time to shop at a garage sale is almost always right at the beginning or right at the tail end.
If you are looking for a specific item, don’t be shy to ask the seller for it right off the bat. Plan your route and figure out where all the best sales are.
While life is indeed expensive, there are savings opportunities everywhere. When making a budget, a few subtle lifestyle changes can save a ton of money every month. If you’re still struggling with debt, consider talking to a credit counsellor.