Budgeting-How do I set up my expenses?
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November 3, 2008
November 3, 2008
Now it’s time to list all of your expenses, examine every item, and decide how much you really want to be spending on each category. A general guide, as CNNMoney suggested, is this:
| Expense Category | % of Income |
| Housing & Debt | 30% |
| Taxes | 25% |
| Insurance | 4% |
| Savings & Investment | 15% |
| Living expenses | 26% |
If you find that you need to cut some costs, here are some tips for cutting down on your expenses:
- 1. Examine your largest costs
Expenses such as your mortgage payments, rent, or car payments are very costly. What percentage of your budget are your rent or mortgage payments? You can refinance your mortgage for a better rate or appeal your home assessment to lower your taxes (be careful, this could backfire).
- 2. Learn to distinguish between ‘wants’ and ‘needs
If you are in the millionaire mindset, you will focus on actions that build your wealth, and will not focus on actions that deteriorate wealth. A need is something that you can’t live without like food and shelter. A want is something that you will survive without like a new TV or cable. If you search for ways to spend your money like window-shopping, you aren’t in the right mindset. Your free time should be spent ways to build your wealth.
- 3. Save on food
Don’t eat out too often. Everybody knows that eating out costs way more than buying groceries and eating in. Two people could eat very well on $100 a week on groceries, but if they went out to eat for lunch and supper, it would cost them easily over $200. That’s double the amount! Now, if you’re already eating in and want to save on groceries, check out Bargainist, Online Organizing, and About.com.
- 4. Learn how to cut your taxes
Keep all receipts, organize your taxes and receipts, and apply for as many deductions as you can. That’s the basics of tax reduction, and check back in a little later for another posting about tax reduction.
- 5. The little things add up
If you spend $2 a day on a coffee, muffin, or another small item, it adds up to $730 in one year. Yeah, it really adds up, doesn’t it! Cut down on those seemingly small, everyday expenses.
- 6. Pay off bad debt ASAP
Basically, bad debt is anything you owe on something that will not make you money. Get rid of that credit card debt, because it will rob you of your wealth. Credit cards charge monthly interest at staggering rates, often around 18-20%. If you bought a $600 TV with your credit card (interest rate 19%), and you made monthly payments of $25, it would take you 2 years to pay off the TV, and you would end up paying 22% more than the original price tag. This behavior robs wealth. It does not build wealth. You have to think like the wealthy.
- 7. Cut out the alcohol and cigarettes
Cigarettes are incredibly expensive these days, with the average cigarette pack in the US priced at about $4.20 (as of Sept 30, 2008). If you smoke a pack a day, that’s $1,533 in a year. In Canada, cigarettes cost even more, so the lesson here is that smoking robs you not only of your health but your wealth too. The same can be said for alcohol, which is also very expensive and offers little in health benefits, so cut down on your alcohol spending.
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