If your budget is not quite looking the way you’d like, it may mean that it is time to cut back on some things. The question I often hear is, “How do we know what to cut?”
If you are like most people, you look at your budget and believe there is nothing at all you can cut. You have tried to move the numbers around time and again, but end up with the same result — not enough money to cover your expenses.
This leads to a lot of stress. How will you pay the mortgage? What about food? And the credit cards? No way can you pay those. You know you need to make changes to your budget, but how do you decide what to cut?
Follow these steps to find out what you need in your budget (you can get a free form to help budget by heading over here).
1. Cover Living Expenses
The first thing you need to do is make sure your living expenses are covered. These include items such as rent or mortgage, utilities and food. These are the musts. You might be able to cut back a little on your food budget, but in many cases you already have.
2. Pay Your Creditors
Next, add the payments you need to make to your creditors every month. This includes medical, vehicles and credit card debt. Only list the minimum required payment at this time. (Remember, high levels of debt can hurt your credit scores. You can see how your debts are affecting your standing by viewing your free credit scores, updated every 14 days, on Credit.com.) You want to make sure your basic budget covers all of your required expenses.
3. Determine Wants vs. Needs
Now that you have your basic expenses all covered, you next have to determine which items you really need versus those you think you need. For example, if you have dining out in your budget, that is not a need. That is truly a want. You may have clothing in your budget, which is a need, but you might be able to lower the amount you budget for kids’ clothes (say, by shopping consignment or sales to stretch your dollar).
When my husband and I were getting out of debt, this is exactly what we did. We created a brand new budget. The first items we listed were the things we needed in order to live. We then added in the few debts we owed. Finally, we looked at how much money we had left to spend and decided which “wants” we would like to add back in and which ones we were willing to give up, just to have additional money to pay off our debt.
It was a challenge for us, too. I did not like it. However, by doing this for just a couple of years, my husband and I were able to eliminate our debt. Now money is something that does not cause us stress. Our budget is simple. We never worry about paying the mortgage or putting food on the table.
When it comes to your finances, there are times when you have to make tough decisions. We all have the things we want, but if you are having financial struggles, you will have no choice but to cut back wherever you can. Small sacrifices now can pay off with huge rewards later.
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