Analyze your Budget.... Where Can You Cut Costs?

As I prepare to start my year long journey to save "2K in 12 months", I need to figure out where I can cut costs. To do this I am going to examine my budget.

I am amazed, and not in a good way, at how much of my life I went through without sitting down and figuring out my monthly bills and formulating a budget. I figured out my very first monthly budget at the beginning of 2007... at age 23!!! Eeeks!

Here are my current monthly/regular bills:

- $769 Rent
- $412 Car Payment
- $102 Cable/Internet
- $155 College Loan Payment #1
- $95 Car Insurance ($568 every 6 months)
- $65 College Loan Payment #2
- $60 Cell phone
- $60 Electric (average)
- $55 Gym Membership
- $25 Unlimited Tanning Membership
- $11 Netflix
- $1809 TOTAL


My take home pay is $2, 445 a month. This means that I have $636 dollars to use at my discretion for gas, groceries, eating out, entertainment, and saving.

I would like to add that I am also putting 5% of my pre-taxed income into my company 401K. I technically should say that my take home pay is more than $2,445, and include the money that is taken out into the budget, but I am trying to "trick" myself. I am not even thinking about the money that is being put towards my retirement. This way I do not miss the money. I also do not allow myself to consider myself saving, since I will not be touching this money until retirement, and I have other things to save for in the meantime. Some people may not agree with the decision to ignore my retirement savings, but when I was planning my 401K, I made sure that the amount I am investing would be enough for my retirement. The savings is on "autopilot" for now, and I will revisit my strategies in a couple years.

Anyway, I digress....

Here is a nifty graph to illustrate what percentage of my take home income is spent on individual bills:

Of the $636 remaining, my goal is to spend the following:
- $150 Groceries & Eating Out
- $85 Gas
- $300 Entertainment
- $100 ING


ANALYSIS:

I need a raise.




Just kidding!!

Rent: I have heard that 30-35% of your take home income spent on housing is the norm. According to this I am in the middle of this range. I still wish I would have skimped a little more on housing so that I can save more!

Car: When taking out a loan for my car, I should have based my decision on my "debt-to-income ratio. I already had student loans, so I should have figured out how much car I could afford.

Consumer Credit Counseling Service (CCCS) advises you have a "debt-to-income" ratio less than 15%.

My debt includes:

loan #1 (6%) + loan # 2 (3%) + car (17%) =

26% debt-to-income ratio

This is baaaaad. I should have found a car with a $147 monthly payment to stay in the range that CCCS advises. I plan on re-financing my car loan now that my credit has improved. Expect a post on my experience soon!

Netflix & Tanning Memberships: These are definitely the "extras" that I am going to force myself to cut.

Car Insurance, Cell Phone and Cable/Internet: These are all things that I could reduce in the future. After my terms are up on these things I am going to get competing auto insurance quotes, consider changing my cell phone provider to take advantage of an offer, and consider getting a smaller cable/Internet package.

Groceries & Eating out: My goal of $150 a month on food and eating out is a thrifty goal. But I think this is one of the areas that is worth the effort it takes to save money. Stop eating out, brown bag your lunches, coupon clip, visit farmer's markets, scour your weekly ads, grow your own vegetables, shop at multiple stores, use your crock pot, etc. Do whatever you have to do in this area, it is worth it. I am constantly trying to beat the amount I spent on last months groceries. Give it a try!

Entertainment: You might be thinking, "You spend twice as much money on entertainment than you do on food??" Yes. And this is the area I have the most trouble sticking to my budget. I have happy hour Thursdays, my weekends through the whole month of July are booked solid. I like to go out to bars, go camping, going to home football games, road trip to visit friends and family, go tubing, go to concerts and festivals, etc. It might seem like a high number but as long as I stay in my budget its okay. Its something I prioritize.

Savings: I should be able to put $100 dollars a month into an ING high-yield online savings account. This should be set up by July 1st so I can make this a direct deposit.


CONCLUSION:

So there is my brutally honest budget. There are some things in my budget that I need to work on, and sticking to your budget is always a continuous struggle. Making some sort of excel sheet, or using your money managing program on your computer is a good way to visually remind yourself of your budget. If you are just starting a budget, track your spending for a month or two (and I mean every penny), and see where your weaknesses are. If you've had a budget for months or years, track your spending for a month or two (and I mean every penny), to see if you are sticking to it!

Best of luck to you... and me!