Household Finance and Budget Hacks to Build Life Stability

Whether you are mired in debt, earn less than required to maintain your desired standard of living, or simply desire to build your savings toward a long-term goal such as retirement, these suggested lifestyle modifications will help you to take better control of your finances.

So how might your expenses compare with everyone else’s? Here is a view of you compare based upon information obtained from various sources such as the BLS, Edmunds, U.S. Energy Information Administration, AAA and the, U.S. Bureau of Labor Statistics.

Housing

The average portion of total income a married couple spends on housing now averages 32%.

Transportation

Total monthly transportation spending including car or public transportation, gas, insurance and other related expenses now averages more than $1,000 monthly.

Health care

The average annual cost of health insurance in the United States was $511. One of the primary factors in your individual health insurance costs is your location, as prices will vary depending on the state and county where you live.

Childcare 

This expense now ranges from $800 to $2400 monthly based upon the State in which you reside. 

Food 

A “moderate” bill for a couple for food consumed at home is approximately $250

Entertainment

The average amount Americans spend each month on entertainment is $105

Cable

The limited basic cable service from Comcast costs about $24 a month; its highest level plan starts at $85 per month. At Time Warner, the Starter TV level costs about $20 per month, with additional service levels costing between $30 and $80 a month. Cox Cable TV has an entry-level option of about $22 per month, with additional service tiers ranging from about $39 to about $100 per month.

So now what?

I have included only the common expenses for narrative purposes. It all adds up quickly and can become difficult to manage if not tracked carefully. This is how many households quickly find themselves mired in debt. What to do?

Start Budgeting

If you are struggling to manage your finances, then you likely do not utilize a budget. A budget is essentially an illustration of how you manage your expenses each month as they relate to your income.  

Write down your income as well as your expenses, then subtract the expenses from income to determine what remains, if any, for discretionary spending. Then at the start of each month, set up your budget to allocate how those discretionary funds will be spent. Track all spending over the course of the month and at the end of the month, determine whether you stuck to your budget.

If you spent more than you made, refine your budget by reducing unnecessary expenses and then implement the revised budget the next month to start living within your means. Following are several ways in which you may reduce common household expenses.

Expenses

One of the easiest things you can do to take control of your finances is to reduce your monthly expenses.

While you may not be able to reduce certain fixed expenses, such as rent or a car payment without drastically altering your lifestyle, you can reduce variable expenses such  as; consumption to lower your cable and other utility costs, seeking alternate lower cost providers for your home or life insurance, or shopping for food and household items at discount bulk stores rather than your local market.

Debt

It almost sounds cliché’ but paying off your debt is a key to getting control of your finances.

One of the most expensive mistakes that you can make is to carry a lot of debt, especially high-interest credit card debt. If you want to improve your financial well-being, then pay off your debt as quickly as your budget allows. Make this your highest priority.

List all of your current debts, be it credit card debt, student loan, or car loan, and calculate the minimum amount you owe to remain current with each debt. Simply paying the minimum amount won’t get you out of debt quickly, so evaluate your fixed expenses and determine how much of your discretionary spending budget you can allocate toward debt repayment of these typically high interest rate debts.

Additionally, you may reduce the interest rate on these types of debts by asking the issuer for a lower rate, consolidating multiple debts into one debt, or transferring high-interest debt to a low-interest credit card, such as a balance transfer card. Then, set up a debt payment plan and adopt sound spending habits to pay off the debt as quickly as possible.

Cable

There is a high probability that you could reduce spending on entertainment each month by simply eliminating your cable or satellite service provider. If you require more funds to supplement your fixed costs or are seeking to allocate more funds toward savings, then reducing or cutting cable services can be a simple solution. If you want to keep your cable services intact, then at a minimum contact your provider to learn of current promotions that will enable you to reduce this monthly expense. Otherwise, you don’t even have to give up TV altogether, simply eliminate costly cable services in favor of low-cost streaming services such as Netflix and Hulu which allow you to continue watching the shows you love.

Food and Dining

Looking for another way to reduce your variable expenses every month? Stop dining out. The occasional meal at a nice restaurant is fine, but the savings can add up if you start preparing dinners at home and bringing lunch to work instead of eating out each day. Bringing your lunch to work can save on average $2,500 per year. 

Plan a weekly dinner menu.  The advantage of planning meals for the entire week is that you can prepare meals in advance. This approach also makes it easier to shop for groceries and ensures that you waste less food because you will most likely use all the ingredients you buy while they are still fresh. Lastly, we are typically hungry when we walk in the door after a long day at work, so advance meal prep reduces the amount of time that will be required for you to put your dinner on the table.

Credit Cards

Value Penguin found that more than 40% of all US households carry credit card debt, with the average American household carrying a balance of $5,700. For only indebted households, which excludes people who pay their balances in full every month, the average debt is $9,333. However, this average varies across different regions in the US. If you are struggling to make ends meet each month, you may be relying too much on your credit cards. If you keep using your credit cards as a measure to make ends meet, you’ll quickly wind up in debt. This will limit how much money you have each month to pay bills, save for retirement, or work toward another financial goal.

If you really want to take control of your finances, stop using your credit cards. In addition to setting a budget so that you don’t have to buy things on credit, switch to cash or debit cards to avoid accruing more debt, open short-term savings account and draw from them for large expenses, or leave your credit card at home so that you’re never tempted to pull it out of your pocket and swipe it.

Student Loans

According to credit.com, here is a snapshot of student loan debt. Average student loan debt total per person: $31,172; Average monthly student loan payment for graduates: $393; Total student loan debt in the U.S.: $1.52 trillion. Time to pay off student debt: 10 to 30 years. 

While student loans are a huge issue for college graduates and the economy, the news is not all grim if you know how to manage Your student loans. Your student loans can saddle you with debt for years if you are not proactive about paying them off. Whether you need to refinance or consolidate them, see if you qualify for a student loan forgiveness program, or create a debt payment plan.

Pro tip – by paying half your student loan amount every two weeks, you will make a full extra payment every year. Some lenders will even reduce your interest rate by around 0.25% when you sign up to make automatic loan payments.  Research all student loan program discount options with your lender.

Employee benefits

In addition to your retirement and health insurance, your company may offer additional employee benefits, such as dental insurance, vision insurance, and flexible spending accounts. Not all of these benefits may be worth the additional money that you pay for them, but some can help with your finances by relieving you of the need to pay out of pocket for essential expenses. Take the time to evaluate your options so that you get the most from your employee benefits.  

Set up a Financial Plan

A financial plan is essential for taking control of your finances and accomplishing specific goals. In short, a financial plan is a timeline for the big milestones in your life. It is similar to a budget, but covers a longer time horizon of 10, 20, or 30 years as compared to a budget which is a short-term plan for the weeks or months ahead. The two documents work hand in hand, which is why a budget is often a component of a larger financial plan. 

These plans can also help you with your finances by prioritizing your goals, as it is often more effective to focus on one or two financial goals at a time. Your financial plan should include events including buying a home, saving for retirement, and paying for your kids’ college education.

Be realistic 

Set financial goals to help you change your finances. Take the time to set financial goals that you are working toward, such as buying a house or growing your retirement savings. If you do not have specific things that you are working toward, you will have difficulty motivating yourself to be disciplined. 

Retirement is expensive, so you should ideally start saving for retirement when you start your first job. Even if you are working on getting out of debt, contribute up to the match offered by your employer—this is free money, after all.  

Summary

Once your debt has been eliminated or is well under control, work on increasing your savings. How much it is recommended that you save depends on how old you are when you start. If you’re in your 20s, you can get by with a contribution rate of 10% to 15% of your income, whereas someone starting to save in her 50s should contribute a whopping 60% of her pay toward retirement. The earlier you start to save, the better for your wallet, both now and in retirement.

I will cover the basic methodology for construction of your nest egg in my next paper.

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