What is on Your Plate?
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Disclaimer: I don’t mean to patronize anyone or make it seem that I have all the answers. I don’t. We all have 40+ years of experience managing our money. If you have a system that works for you, that’s great. But for anyone that struggles with monthly financial outflow, I’m going to quickly go over the system that has worked for my household over the last 15 years. (Shout out to Gail Vaz Oxlade, Til Debt Do U$ Part)
Budgeting and Finance Can Be a Drag
But it is so necessary. You can’t fix what you don’t know. Pull out your bank statements and see what money is coming in and where it is going. Open up an Excel spreadsheet. Or a spiral notebook. It doesn’t matter. By the end of your finance check you should have a list of what you spend money on and a good idea of what your household expenditures look like on any given month. To make this process more enjoyable, I suggest turning on some 80’s music that will take you back to happier, simpler times. We have an awesome mixtape page on site if you want to check it out.
Go back to your list and mark which expenses are Needs, Wants, and Savings & Debt.
Needs are non-negotiables required for survival and basic obligations. If you can’t live without it, it’s a Need. Examples: housing, basic groceries, utilities (water/electric), health insurance, childcare, transportation, and minimum debt payments.
Wants are non-essential expenses and lifestyle choices. Wants are things you choose to enhance the quality of your life. Examples: Eating out, vacations, streaming services, gym memberships, clothing, beauty treatments, premium brands (including the make and model of your car or truck).
Savings & Debt is just that, securing your future and paying down your debt. Examples: emergency funds, retirement accounts, extra money towards debt repayment past the minimum due.
Now tally up each of the Needs, Wants and Savings & Debt categories. Percentage based budgeting uses the 50/30/20 rule - 50% of your money should go to Needs, 30% should go to Wants, 20% should go to Savings & Debt. Make a note of what your percentage is in each category. I don’t stick with this as a hard rule, I treat it along the lines of the nutritional food pyramid. I know what it recommended but I am going to make my own decisions.
Then mark which are Fixed and which are Variable.
Fixed expenses should be in the Needs category that are more or less the same amount every month. Examples of this are mortgage/rent, electricity, phone, TV/Internet, insurance, and car loan. Look at each line item and see if there is anything that you can do to bring down the cost. FAWA has an article on site listing strategies on how to cut grocery costs.
Mortgage/Rent - Are you able to downsize or move? If you have retired, perhaps you don’t need to be in the same neighborhood that was a convenient commute. What are the interest rates right now? Does it make sense to refinance? If you have a spare bedroom or a vacant downstairs, could you bring in a renter? (Choose wisely, the last thing you need is a nightmare tenant that you take on Judge Judy.) Are you able to share housing with family for a time to bring down costs?
Electricity - Some energy companies offer programs for seniors 65+ (GenX doesn’t qualify yet but something to keep in mind) that can give bill payment assistance, hardship grants, or specialized payment plans. They can arrange flexible due dates to coincide with retirement fixed income schedules and can give you bill credits if you participate in program that allows them to control your energy usage during peak grid demands.
What can you do today to reduce your costs?
AC, heat pumps, and electric furnaces use the most electricity in your home and make up about 40-50% of your monthly bill. Make sure your units are in good maintenance and check for leaks around doors and windows. Don’t heat the outdoors!
Water heaters are the next highest user of energy in your home. If you live in an area with hard water, calcium and magnesium can accumulate in the bottom of the tank forcing the unit to work harder. Check the lifespan of your heater if you see your bills creep up as it may be time for a new one. Be mindful of how frequently you take long, hot showers, run the dishwasher, and the washer and dryer. The dryer especially uses an insane amount of energy.
Set your thermostat to 78 degrees in the summer and 68 degrees or lower in the winter. Turn off the lights in rooms you aren’t using, switch to LED bulbs, unplug unused devices, go feral again and spend more time outdoors. You could elect to go off grid but that is an entirely different website.
Phone - Unless you need a landline for work, consider ditching it. Cellphone companies are very competitive for your business. Always keep an eye out for promotions and as you end the promotional period, call them to say you are thinking of switching but want to know beforehand if they can do anything to keep your business. Family cellphone packages can be split between households and can keep costs down.
Cable TV/Internet - Younger generations have no problem ditching cable TV completely and just rely on streaming services. We didn’t have cable TV growing up (one TV, three/four channels and rabbit ears) and when it first began with channels like MTV, it started the golden era of channel surfing. I feel we are one of the last generations holding onto it. If it adds to your life then keep it, but steer away from expensive bloated cable packages. Also, ask yourself how fast your internet needs to be and purchase accordingly.
Insurance - I have alot to say about the insurance industry and none of it very nice. Shop around with all the major companies before you sign up and check in again at the end of every renewal period to make sure you are getting the best deal. Your premiums can be tied to your credit rating, so it is another good reason to pay off debt and get your finances in order…cheaper rates. Also, do you need one car or two? Could someone carpool to work, take public transit or work from home?
Car Loan - You can refinance the loan if your credit score has improved or market rates have dropped. One of the easiest ways to save is to split your monthly bill into two smaller segments made every two weeks. This results in making 13 full monthly payments a year and saves on interest and shortens your payoff timeline. This only works if you are good with remembering your bill pay commitments…don’t short your car payment and reduce your credit score. If you score some extra money you can make a principal-only payment. And if you feel you purchased a vehicle that is over your budget, consider selling it and putting whatever equity you have in it towards a cheaper car.
Do you have a Fixed expense that is in a Wants category? This can either be an important non-negotiable budget item that supports your life happiness quotient, or it can be a big RED FLAG that this is something that can be lessened or eliminated in your budget.
What are Variable expenses?
Variables are everything else that sucks up money outside of fixed expenses and savings. I put mine into five categories: Food, Fun, Car, Clothing/Gifts, and Miscellaneous. So ideally after you reassess your Fixed expenses, you would next decide how much money you want to save each month. Then you split out what remaining money you have into these Variable budget categories and stick to it. The budget below is not entirely realistic but is given for the purpose of illustrating how Fixed, Variable and Saving & Debt are intertwined. Let’s map out a sunshine and roses Pollyanna example to see how this works out.
Let’s say your household brings in $65,000/year. That’s $5,417/month gross, roughly $4604 net.
Fixed:
Housing - $1100
Electric - $250
Phone - $70
Cable TV/Internet - $185
Car Insurance - $200
Health Insurance - $300
Car Loan - $600
TOTAL $2705
Savings Goal - $500
NEW FIXED TOTAL - $3205
You now have $1400 left to spend on the Variables:
Food - $800
Fun - $150 (eating out, movies, drinks with friends, hair/nails, coffee runs)
Car - $250 (gas and maintenance)
Clothing/Gifts - $50
Miscellaneous - $150 (Home Depot/Lowe’s runs, Amazon purchases, drugstores, pet care)
And my friends, this is the financial bottleneck and why savings are so hard to achieve. It is also the reason why folks run short at the end of the month and don’t have enough to pay their fixed expenses. You have three choices in order to save money: reduce your fixed expenses, budget your variable expenses, make more money, or all of the above. We all have tough choices to make for sure. Would you like to learn how to save $1000 in a month?
