Perhaps your household income decreased because you changed jobs or you received a smaller bonus than you expected. Maybe expenses have exceeded your budget due to unexpected emergencies or you’ve found yourself indulging in luxuries more frequently than you anticipated. Or perhaps it is a little bit of both that’s caused financial stress.
So you’ve made a resolution. You cannot change the past, but you can change the future. It’s time to set your finances back on track.
If you and your spouse are doing everything reasonable to bring in an income, you need to focus on the other side of the income-expense equation and adjust your spending. To do so, take these steps.
1. Track Your Spending
If you want to understand your spending, you can add up the numbers manually. If, however, you use banking or a personal finance software, it will be much easier.
Software such as Quicken enables you to group expenses under various categories, such as groceries, utilities, mortgage, dining, clothes and anything that is relevant to your household. These groupings make it easier to pinpoint where you are overspending. Also, you can look at spending trends.
2. Review and Adjust Everyday Expenses
Now ask some questions. For example, are you spending more on groceries than you had anticipated? Has spending trended up over time?
If so, consider whether some expensive habits have crept up on you. When you are crunched for time and prefer not to slave in the kitchen, it can happen. Supermarkets tempt us all with prepared foods — pre-cut veggies, or quiches and pizzas that when you just pop in the oven, they are instantly ready. Sadly, they come with premium prices.
It may be time to change your buying habits. For instance, you can make more meals from scratch to stretch your grocery dollars further.
Use this review-and-adjust process for each line item in your budget to pare down expenses. If dining out costs have increased, dine out less. If your energy bills are climbing, raise the thermostat a couple of degrees in the summer and lower it a couple in the winter.
3. Consider Whether Fixed Expenses Are Truly Fixed
There are also some expenses that chug along steadily month after month. It seems as if these costs are set in stone. They include, for instance, your mortgage, rent, taxes and insurance.
Is there anything you can do to whittle them down?
Often, there is more play in these outflows than you might expect. For many people, they remain constant because of inertia — the tendency to stay the course rather than taking action to change it.
Ask a few questions to determine how fixed these expenses really are. Have you considered refinancing your mortgage at a lower rate or extending the term to lower your payments? Have you looked into whether a revised home assessment could help reduce your property taxes? Other suggestions include using a line of credit mortgage to create deductible interest, comparing cellular services, streaming to reduce cable costs or bundling your phone with a cable provider.
Also, have you shopped around recently for insurance? There may be less expensive options. For instance, you can save on insurance with group rates through the AAFP Insurance Program.
4. Plan for Surprises
It happens to all of us — unexpected expenses arise over which we have little control.
For example, your geriatric dog may suddenly need medication to treat his arthritis. On top of that, there are the vet fees. Or maybe your refrigerator broke down and you had to buy a new one.
Surprise expenses are a fact of life. While you do not know where they will crop up each year, you still need a plan, so you are financially prepared when they occur.
Set aside some money each month for an emergency fund that you can dip into when necessary. This practice prevents unforeseen events from disrupting your financial plan. Start small by saving one or two percent of your income. As you develop a habit of saving, grow your contribution.
If you move forward with a good handle on your expenses and make a few changes, you will be better able to live within your means.
Start by tracking your spending, so you understand how your financial plan went off track. Then review each expense category and adjust your budget as necessary. Also, make sure you have an emergency fund for expenses you do not anticipate. By making these changes, you will build a solid financial foundation and will be able to rest easily at night.
