Kim's question is a common one. A family spends more than they
make. So they do a little homework and put some numbers on paper.
The next step is the hardest, but most crucial one. Finding out
what to do to close the gap.
Fortunately for Kim, and everyone else who has faced this
problem, the question can be broken down into smaller, more
easily answered questions.
The first question that she needs to ask is how big is the gap
between income and expenses. If you're looking for $50 a month,
you can consider taking a lunch to work. But if you're short
$500, then lunches just aren't going to cut it.
Realistically, you can cut about 10% of many monthly bills. If
you try real hard, you'll reduce 15%. But, unless you just waste
money at every turn, it's very hard to save more than that
without changing your lifestyle.
If your expenses exceed your income by 10% or more, you probably
need to consider major changes. You've either spending too much
on house or auto payments or you're living way beyond your means.
When your housing and auto payments combined are more than 45% of
your take home pay, it becomes difficult to balance your budget.
Usually the only solution is to refinance or trade for a less
expensive home or auto.
It could be that payments for past purchases are dragging you
down. Kim's payments aren't too bad, but many people could
balance their budgets if it weren't for credit card minimums.
Consider consolidating the debts to a lower interest rate home
loan or credit card. If that's not possible, it may be time to
contact a credit counseling company for help. It's also time to
consider cutting up the credit cards.
Kim is fortunate that she's not facing a huge problem. If she can
cut $100 to $200 from her budget, things will look a lot better.
So where should she start?
For most families, the groceries/food area is the best place. We
spend a lot on food. We also make a lot of decisions about buying
food. That makes it easy to save a little bit each day.
Next, she should price shop her home and auto insurance policies.
A change in coverage or company could save hundreds a year.
After that, it's time to look at her utility bills. The best way
for Kim to evaluate her utility bills is to compare them to her
neighbors. If your home is about the same size, but your bill is
much larger, then you know that something is wrong.
After all this, Kim may still find that there's not enough money
at the end of the month. When that happens, she'll have to
consider dropping some lifestyle choices. Perhaps they really
can't afford cable TV, gymnastics and cell phones.
It appears that Kim is a stay-at-home mom. That gives her the
opportunity to turn her time into money. She can do that three
ways. The first is by being a super shopper. She has the time to
search out consignment shops and yard sale bargains.
Secondly, she'll save by avoiding purchases. Sewing, gardening
and cooking from scratch all reduce expenses.
Lastly, she can increase their income with a part-time job.
Watching a neighbor's kids after school or doing some
housecleaning one day a week might be just the ticket.
A couple of final thoughts. Kim's right that the credit card
balance creates a problem. Using their tax refund to pay it off
is a good idea. But if they don't create some room for savings in
their regular budget, sooner or later they'll run up a credit
card balance again. The only way to avoid that is to save some
money each month.
Also, a large tax refund could be a sign that they need to change
their withholding rate. That would increase take-home pay.
Often it's a combination of things that put a budget into shape.
Hopefully, Kim will find the combination that works for her.
Gary Foreman is the editor of The Dollar Stretcher.com <
www.stretcher.com/r/134.htm> and newsletters <
http://www.stretcher.com/subscribe/subscribeDS.cfm>. Not only
does the site host thousands of articles on various ways to save
money, but you'll also find a vibrant forum where people share
their dollar stretching ideas. You can also follow Gary on