How Do I Trim the Fat From a Bloated Budget?
In boxing, each boxer has an ideal fighting weight—the weight that provides the best balance of speed and power. If a boxer is too heavy, they forfeit their speed. If they are too light, they lose power. Finding this ideal weight and maintaining it is the main challenge for most boxers and their handlers. As it turns out, investors need to strike this same type of balance in their finances—particularly when it comes to making a budget.
For example, if you are finding that you are not meeting your financial goals as quickly as you planned, you may need to trim down your expenses. On the other hand, if you set a budget that is too harsh, you will probably lose your motivation to follow it.
- A bloated budget may mean you are spending too much, even on necessary items.
- If you keep your household debts low, you should be able to save a little money each month.
- It may not be a good idea to spend your budget down to zero, especially if you don’t have any savings for emergencies.
- Trimming a bloated budget can help you maintain a balanced budget.
- There may be ways to deflate your budget, such as doing house and yard work yourself and opting to keep luxuries at a minimum.
Understanding a Bloated Budget
A bloated budget means you are not managing your money or meeting your long-term and short-term financial goals. You want to make sure your budget is balanced to keep within its framework as you pay your bills, put away money in savings, and not overspend. It is important to keep your household needs to a minimum and evaluate how much you spend on unnecessary items.
Necessary Spending: Good and Bad Calories
When you’re working out your budget, expenses are necessary. You should watch out for the quality of the costs you incur—this can make a big difference in terms of how much disposable income and savings you end up with.
The problem with necessary expenses is that people feel that they can go all out when buying something they need. You need a house. The house needs furniture. The car needs a wax. But these “necessary” expenses quickly become unnecessarily expensive. You need a place to live, true, but if you have a mortgage that is eating 50% of your monthly income, that is definitely a problem and can lead to a bloated budget.
The same is true for new cars. You may need something to transport you back and forth, but buying a new car with all the options is a sure way to reduce your disposable income and ability to save.
If you buy the biggest house, you can afford, lease a brand new car and tighten your budget to the point where your monthly expenses are leaving you with a zero balance each month, and it may only take something small like a faulty water heater to break the bank. And then the credit cards come out, and the slope gets slippery.
7 Ways to Trim Fat from Your Spending
Unnecessary Spending: Empty Calories
Necessary and unnecessary expenses are sometimes difficult to separate. As we saw above, within each necessary expense, there is a range of reasonable costs that you may be surpassing. There are, however, many common expenses that are more luxuries than necessities.
Whether we know it or not, we are living in a golden age of luxuries, which are not a bad thing, but they can add up and cost you. One area where luxuries often sneak up and bludgeon your monthly budget is through the services you receive.
If someone else is cutting your lawn and cleaning your house, you may be living way outside your ideal budget. Although it is nice to have someone else cut the grass and do the dishes once in a while, using such services regularly is a sure way to reduce your disposable income. Ultimately, the money you have leftover from expenses is money you can invest.
The money you bring home to pay for these luxuries has already been earned and taxed. When you spend it on frivolous luxuries, you lengthen the amount of time you have to keep working to finance your retirement—is having your carpet vacuumed worth the time you spend working overtime on your 65th birthday? Spending your money on unnecessary items, you could live without is a surefire way to put your savings plan on the bench.
You may find that saving for a luxury item in advance motivates you to budget more efficiently and keeps you from overspending.
Careful Spending: The Best Defense is a Good Offense
It is human nature to want certain luxuries. The goal is not to let those luxuries get out of hand. This doesn’t just mean the high-maintenance money holes like second homes, vintage motorbikes, and rarely-used boats. Still, it also includes smaller items like advanced cable packages or expensive internet connections.
For example, suppose that you want the internet to send emails and keep on top of stock prices. You can get different internet connections with varying speeds and costs based on the bandwidth you pay for every month. For people who want email and some browsing, the cheapest connection often provides more than enough bandwidth. These same people end up trying out one of the faster connections and then signing on, perhaps even spending more time on the internet than they planned or wanted to justify the purchase.
Cable packages work the same way: people go in looking to get the golf channel and come out with the platinum plan. The same is true for most cell phones, cameras, computers, and other electronic purchases.
If you want to come out on top, be proactive when you absolutely need to purchase a luxury. Put limits on what you will buy before you even step into the store. Nail down what you need, and then decide how much you can afford to spend and still maintain your budget. If possible, set up your budget so that saving up for a luxury item is a part of it—rather than charging luxuries to a credit card and having to adjust your budget to pay off the debt later on.
When you are looking at buying a house or a car, always allow room in your budget for emergencies, or you could find yourself in debt, or worse, you could lose them to the bank.
Better Budgeting: Blood and Sweat in the Gym Saves You in the Ring
The roadwork, training, and effort that a boxer goes through in the months before a fight decides how successful he will be in the ring. Likewise, the harder you work on your budget, the easier managing your finances will become. There are sacrifices. Some of them are as small as getting a connection a few bytes slower or making your morning coffee instead of getting it from a shop on your way to work. Some are big, like passing up on the cabin in the mountains or a new car in favor of a used one.
In boxing, you have the choice of sweating and sacrificing in the gym or getting knocked out in front of everyone when it matters. No one is monitoring your training with your finances, but you can get knocked out by being too lax with your expenses. It is better to do the hard work of budgeting and cutting down on your expenses on your terms rather than when a creditor is twisting your arm.
Bloated Budget FAQs
What Should I Trim From My Budget?
The first thing to reduce in a bloated budget is any luxuries you don’t need to have in your life, like online and magazine subscriptions, home services you can do yourself, dining out, and other entertainment. You can find different ways to have fun without breaking the bank.
What Are Some Common Mistakes People Make When They Create a Budget?
Many common mistakes occur when people make a budget for the first time. Being too ambitious with an unrealistic budget is one of them, not being motivated to keep track of a budget and not tracking every expenditure. It’s important to review and adjust your budget monthly to figure out ways to improve it. A budget, in many ways, is a living document.
What Does It Mean to Trim the Fat?
In financial terms, trimming the fat means cutting out extraneous line items in a budget.
What Are Some Possible Side Effects of Failures in Budgeting?
If you fail to budget, you may find yourself using your credit cards more often and ending up in debt. Failing to stay within your budget may also mean you don’t have enough money to pay important bills like a mortgage or car payment, and may impact your ability to have any money saved for an emergency.
What Are Some Unnecessary Expenses?
Unnecessary expenses may be different for each individual. Some general and often unnecessary expenses could be going out to eat or ordering take-out instead of cooking at home, purchasing designer or upscale clothing, jewelry, or accessories. Hiring a cleaner or someone to cut your grass may not be a necessary expense, as well. Buying expensive electronics such as the latest model of smartphone or computer may also be an unnecessary expense.