If you have read any of my previous articles, you know that this is always a judgement-free zone. I will never tell you to buy fewer lattes. You work hard for your money and you should be able to spend it on absolutely anything you want. Otherwise, what’s the point?
But, for many of us, there comes a point where we feel like the money we have is slipping through our fingers. If your situation is that you find your self running out of money before you run out of month, then you’re reading the right article.
And, you are not alone. According to research by Careerbuilder, 4 out of 5 Americans currently live paycheck-to-paycheck. And, according to other research by Bankrate, 60% of Americans say they do not have enough in savings to cover a $1,000 unexpected expense without taking on debt.
So, what can you do to break the cycle? How can you find room for savings in your budget?
First things first, you need a budget. If you don’t have one, check out my article on how to build an undetailed budget.
As a reminder the undetailed budget is
Income – Recurring Expenses = Personal Expenses + Savings
Every single month, whether you plan it or not, that equation will balance itself out. It absolutely has to. There is no other way.
So, if you have followed my advice from the undetailed budget article, then you have learned, memorized, and internalized these four numbers. Maybe you have been using the undetailed budget for a few months, but have not been able to really get ahead. So, what’s next?
The next step is to look at three of the four areas and make sure you are doing the best you can.
Are maximizing your income?
In the short term, are there any extra shifts you could pick up at your current job? Overtime you’re not taking advantage of?
In the medium term, are there any items around your house that could be worth a few bucks on Facebook Marketplace or eBay?
Also in the medium term, do you have time for a side-hustle? Could you drive for Uber or Lyft? Deliver food for UberEats or DoorDash? Deliver other stuff for Postmates?
In the long term, are you on a career path that has growth potential? Where will your current job take you in five or 10 years?
Changing career paths generally doesn’t help you get to the end of this month. But, if you can boost your income a bit with more hours or a side hustle to get by, it may just give you the breathing room you need.
The secret is in the undetailed budget. If you can boost your income by just a little, it can have a big impact on savings or personal spending.
Here’s that equation again:
Income – Recurring Expenses = Personal Expenses + Savings
If you can boost your Income by just a few hundred dollars but keep your Recurring Expenses the same, then all of that new income can go straight to personal expenses or savings.
For example, let’s say your Income is $3,000 per month, Recurring Expenses are $1,500, Personal Expenses are $1,200, and Savings are $300.
If you can boost your income by $300 and keep everything else the same, you can Double your Savings. You can turn a 10% increase in income into a 100% increase in savings.
Or, if you need to spend that additional income, a 10% increase in income becomes a 25% increase in Personal Expenses.
The point is that a relatively small increase in Income can create a lot of breathing room in your undetailed budget.
Second: Recurring Expenses
For most families, the biggest Recurring Expenses are housing and transportation. Unfortunately, these two expenses are generally pretty inflexible and can take months or years to make significant changes (more on that in this article).
However, in the last few years there has been a trend that has been sneaking up on a lot of families: subscriptions.
It used to be that the only recurring expenses beyond housing and transportation were utilities (gas, electric, water, garbage, telephone, internet, TV), and maybe some magazine subscriptions. But, now, there is a subscription for everything.
You can have a subscription for food delivery, clothing, beauty supplies, pet toys & treats, ties, handbags, snacks, hot sauce, coffee, beer, wine, spirits, home accents, games, flowers, vitamins & supplements, feminine products, meditation products, kids toys, books… the list seems to get longer every day!
These subscriptions may be a place in your budget where you are spending more than you think. Take a look at all of your subscriptions plus cable & internet, cell phones, cell phone insurance, and anything else you get charged for automatically and see if there is room to cut back.
Budget Billing for Utilities
Also, don’t forget utilities. I love budget billing for power and natural gas.
In most areas of the US, you can have the utility company bill you the same amount every month, which can smooth your utility bills and make it easier to budget.
I live in Boise, Idaho, where temperatures can be over 100F in the summer and -20F in the winter. As a result, the electric bill is higher in July and August and the gas bill is higher November through March.
But, both my electricity supplier and my gas supplier allow budget billing. So, they look a my usage history for the last 12 months and just bill me the average each month. They still keep track of my actual usage and make sure that I’m not paying too much or too little, and they may adjust my payment up or down a few dollars every 6 to 12 months, just to keep me in balance.
There is no charge for budget billing in my area. Over time you end up paying the exact same amount for utilities. The only difference is that your recurring expenses are much more predictable.
Third: Personal Expenses
Cutting back on personal expenses is where most personal finance gurus spend their time. This is where they tell you that your lattes and avocado toast are killing your budget.
You won’t hear that from me. (No judgement zone, remember?)
However, even though I don’t care at all what you spend your money on… I do feel very strongly that you should be 100% aware and in control of where your money goes.
To accomplish this, I like Mint.com.
You can enter your banking information into Mint and they will sync your transactions every day. The transactions are categorized automatically, and they’re usually pretty accurate. If not, you can change the category that was assigned.
For most people, the best way to start with Mint is to get it all set up and then track your spending for two or three months. Start to get a feel for what you generally spend.
I can’t tell you how many times I have helped people budget and had them be surprised at two things:
- There is always at least one category where they spend double what they thought they did; and,
- Their spending is incredibly consistent from month to month.
They say things like, “well, this month was hard because three friends had birthdays and we went out to eat more than usual.” But, we look at their history and their eating-out expenses were within $25 or $50 each month for the last three months.
The point is that personal spending habits are just that: habits. And, as habits they take time and energy to change. If you are unhappy about your personal spending habits and you would like to change them, then the first step is to really understand what your habits actually are. Then, you can make specific goals about which categories you want to change.
Running out of money before the end of the month sucks. Living paycheck-to-paycheck sucks.
It can feel overwhelming. And, being overwhelmed can lead to procrastination and stress.
Hopefully, this article has given you at least one tool that you can use to reduce the stress, and maybe pointed you in a direction where you can find a pocket (or two) in your undetailed budget where you can create a little more wiggle room.
I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.