Budgeting: Reduce Variable Expenses
Although fixed expenses are hard to change without refinancing loans, selling off assets, etc., many variable expenses can be easily reduced or eliminated. Lowering your variable expenses means (1) giving up things you don't need like soda pop and cigarettes; (2) saving money on goods and services you do need, such as food and clothing; and (3) finding ways to lower the cost of things you use every day, such as electricity and telephones.
Your goal in slashing variable expenses is to free up enough money to pay down your debt and avoid bankruptcy and credit counseling services. You might have to live a very austere existence to accomplish this, but our "Ways to Save Money" section offers dozens of ideas on slashing your expenses, for example, you can find out how to slash your phone bill.
All money you save from reducing your variable expenses should first be used to (1) create an emergency fund with enough money to cover all of your living expenses for six months (one year would be even better); and then (2) pay off all credit card debt.
Print out a worksheet and make a list of your own ideas on cutting variable expenses while reading the "Ways to Save Money" section. Use the calculators listed at right to help you figure out how much you can save. In particular, use the generic vs. store brand calculator to find out how much you can save on groceries; the brown bag calculator to find out how much you can save bringing your lunch to work and the periodic spending cost calculator to find out how much you are wasting on things you don't really need.
Below are just an example of a few ways to lower variable expenses and how you can use your savings to create wealth.
Fewer visits to coffee houses
Get free checking account at credit union
Bring lunch to work everyday
No vending machine snacks
Transfer high credit card balance to low-rate creditcard
Fewer long distance calls
Prepare meals from scratch
Dry clean less often
Cancel premium cable television
Cut back on entertainment
Use to pay down debt or invest
Note: If you had saved the $4,000 above and purchased $4,000 worth of Apple stock ten years ago, you would have over $200,000 as of 2012. Every dollar you save counts. You can take a few thousand dollars, invest it in a Vanguard Index Fund, and come out way ahead ten years in the future. This is why saving money, getting out of debt and organizing your finances is one of the most important things you can do for yourself and your family to attain financial freedom and wealth.
Keep track of every penny you spend for one or two months, then organize your spending in to categories. This will tell you how much you are spending on unnecessary items each month. Most people discover that they waste a significant amount of money on goods and services that aren't necessary -- money that could be spent paying off debts. Numerous budgeting worksheets are available for print out and financial calculators can help you create schedules and statements. Hundreds of money-saving tips and ways to lower bills are in the "Ways to Save Money" section.
Worksheet Illustration: Ways to Reduce Variable Expenses
Eat fewer restaurant meals
Set clothing allowance at $60 per month
Give up health membership
Found lower auto insurance rate
Cancel phone extras -- call waiting, caller ID
Cut credit card interest rate
Reduce Variable Expenses