If you have more money going out than coming in, you have a major problem.
If it were an income problem, then you’re not making enough money to cover your outgoings. However, it’s far more likely that it is an expense problem, right?
Are you simply spending too much?
We’ve talked about personal debt before as private debt in the UK is now more than £1.4 trillion; with average household debt has risen to £54,000.
But even minimum wage, unsatisfactory though it might be, should be able to sustain a normal person’s basic needs. If you find you are unable to do this, you can either search for a new, better-paid job, which may be beneficial in the long run but almost certainly be much more difficult. Or, you can simply take a look at your expenses and tighten up the budget without the need of dipping into your savings.
So if you’re spreadsheet shows that your projected expense outweighs your income then you need to have a long, hard look at that expense list.
Make a List!
The first thing to do is to actually make one!
Make a detailed (and I mean absolutely thorough) inventory of every penny you spend in a week. Then, arrange these things in terms of priority, first to last. Obviously essentials like accommodation, food and travel to and from work will be at the top of the list, whilst luxuries like nights out, short weekend breaks and gifts (either to yourselves or others) will be near the bottom.
Cut out the Luxuries
Once you have compiled your list, have a look at the things near the bottom of the list, the low priority (but often high expense) items. Do you really need these?
If you can go without a trip to the cinema, that new pair of shoes or those few beers after work, make it so. Alcohol, especially, is a massive drain on your budget. Try going for a month without a drop of alcohol and you will be amazed how much you can save.
Trim the Fat off the Essentials
Of course, you need a roof over your head. But is the one you currently inhabit really the best cost-effective option?
It might be worth the time to do some browsing online to see if there are better, cheaper apartments out there. Sharing with others is always a great option to bring costs down and increases the social aspect.
Similarly, you have to eat. But you don’t have to out at restaurants every night of the week, nor do you have to order takeaway. Learn to cook and you might surprise yourself, not only in the money you will certainly save, but also the fun you can have creating delicious recipes and the latent talent you might harbor in the kitchen. Cooking tasty and nutritious meals is not only great for your wallet, but also a very useful life skill and one you will never regret learning.
Going even further, you can cut out midday expenses by purchasing overpriced lunches every day. The margins between store-bought ready-made sandwiches and the exact same ingredients purchased in a supermarket and assembled by your own hands is astonishing. Over the course of a year, the money you save in this respect will add up to a healthy amount. Prepare meals the night before and store them in the fridge, so you can grab them on the go the next morning.
And finally, depending on where you live, you are more than likely going to have to commute to work. However, is it necessary to drive?
The maintenance on a car alone is extortionate, not even taking into account petrol prices. Or do you take a taxi?
This, too, is not a sensible or sustainable option, since taxis are generally even more expensive than driving yourself. And even public transport costs can mount up. Consider a cheaper and more eco-friendly alternative like bicycling or even walking, if the circumstances allow. If you are looking for a cheaper apartment, you could even look for one closer to work to achieve a double-whammy in savings.
Don’t Commit to Long Term Expenses
As best you can, don’t enter into long-term deals which require a substantial commitment to future payments. Of course, you might want to have a mobile phone with a yearly payment plan to allow you to surf the web, make calls, etc. And that’s fine; but make sure you aren’t overextending yourself. By committing to paying a certain amount each month, you are effectively betting that your future circumstances won’t change.
What happens if you lose your job, or if the rent on your apartment goes up?
What if, through accident or injury, you suddenly have to pay an unexpected lump sum?
The money you have committed to spending on your phone contract (or payment plan for a new car, TV, house, etc.) will force you to borrow to make ends meet… and this is how the downward spiral of debt begins.
And while there is no shame in taking out a short term loan if you have no other option, try to keep fixed expenses as low as possible, and as short-term as possible. You never know when your circumstances may change.
Plan for Tomorrow, Budget for Today
To make sure you stay out of the red, all it takes is to follow some simple rules regarding your spending. Don’t spend money that you don’t have, don’t commit to spending money over a long period of time, and minimize that which you actually do spend in any way possible.
If you find yourself struggling in debt but are still holding down a job, the problem more than likely lies with your spending habits.
For more great tips on how to curb those spending habits, check out our recent article: The Key to Saving and Becoming a Happier Person.
How do you stay disciplined with your incomings and expenses? Do you have any tips to share with our readers? Let us know in the comments section below.