Budgeting isn’t easy for anyone, and it can be hard to identify areas to cut back on, but even small adjustments can lead to big savings over time.
“The budget is not there to control you, but it’s you taking control of your spending habits,” says certified public accountant Ernest Almonte, chair of the National CPA Financial Literacy Commission. “It’s you personally making the decision where you want to spend your money-- the budget just helps us get it done without putting ourselves in financial trouble.”
To help identify areas to reduce spending, he recommends reviewing your total spending last year and see if there are any consumption patterns that can be altered. “You can easily change your life and your spending habits so that you can enjoy your coffee every week.”
Paying yourself first is the key to solving financial problems and increasing your savings, and experts recommend having a portion of your paycheck automatically go into savings.
Next, Katherine Dean, managing director of wealth planning, Wells Fargo Private Bank, suggests breaking down your budget into needs and wants. “Folks understand that retirement and saving is important, but they struggle with how to do it and how to get the answers.”
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Don't be too Scared to Change Your Budget
While reviewing the line items in your budget, experts suggest these areas to consider cutting back:
Housing. The general budget rule for housing--whether you rent or buy-- is that it shouldn’t take up more than 30% of your income.
“It’s important for first time home buyers to purchase a home that they can afford,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. “When you’re buying the home, buy something that won’t stretch your budget — you don’t want to be cash poor because of your housing costs.”
Entertainment. Your Friday night outings tend to eat a big chunk of your budget, but shifting a night out to just meeting for drinks can bring substantial savings without missing out on the fun.
“You’re still spending time with friends, but you reduced your cost from eating at home— that frees up money to do something else,” says Almonte.
Home improvements. When deciding on what home renovations to tackle, make sure they will add value to the home and aren’t just for aesthetics.
“Look at your budget and prioritize what will add to your home’s value or what’s needed so you can make wise decisions with your money,” says de Baca.
Taking on a do-it-yourself project can save you money depending on your skill level. Experts recommend not taking on projects that require expert skills by yourself or you can end up spending more money to fix your mistakes.
Fancy Coffee. “Brewing your own coffee saves a lot of money over time,” says San Diego-based certified public accountant Leonard Wright, member of the National CPA Financial Literacy Commission. “If you can cut the cost in half, you can save $3 to $4 a day pretty easily.”
If you drink two fancy cups of coffee a day, switching to a black cup of coffee can save you money—$4 a day times 5 days a week times 52 weeks is about $1,000 after taxes each year.
Fitness Centers. If you are only using your gym membership a couple times a week, experts say that’s a waste of money.
“If you’re just working out every once in a while, maybe buy the equipment to work out at home,” suggests Almonte. “If you just run on the treadmill, maybe you can join a running group instead, which is free. You’re exercising, you’re with friends, it’s social and it’s free.”
Phone and Cable Bills. Oftentimes our cell and cable bills are filled with extras we don’t even use, but pay for every month.
“Take a look at how you use your phone and data plan— maybe there’s a way to reduce your data plan and save money,” says Almonte.
Shopping. Wright suggests shopping smart. “Make sure you have the proper apps in your phone to make sure that whatever you’re buying is at good price and then don’t spend that difference,” he adds. Shop for gifts all year also. “If you have that list in the back of your mind, when you’re traveling around, when you come across a great deal that’s 80% off, pick that up because it’s a great deal."
Transportation. Driving to work every day can be convenient, but costly, so experts suggest looking into public transportation and carpooling.
“You give up freedom to leave when you want, but the amount of money that you save might make it worth it,” says Almonte. Money paid for gas and parking can instead be used for emergencies or to pay off debt.
Vacation. Everyone needs a little R&R, but don’t let it break your budget and send you into debt.
“Think very carefully about the type and frequency to make sure the vacation fits into your budget,” says de Baca. “Overspending on vacation is easy to do, but if you look for deals, you can save money.”
Vacations are about the experience and the people you’re with rather than where you go. “Get a national park pass that costs about $70 a year,” says Wright. “You can have extraordinary experiences and not spend a lot of money. It’s a great value for not much money.”
Energy Costs. “During the summer or winter, make sure the thermostat is off when you’re not in the house,” says Wright. “Tolerate that the house temperature might not be comfortable, but you can save money in your energy costs.”