At some point in our lives, many of us come to believe that accruing debt is part of life. After all, you can’t build credit without taking on debt, and credit scores are becoming increasingly more important when it comes to finding a place to live, purchasing a vehicle, and even getting a job. The problem is that many people wait too late to stomp their debt break. When you reach the point that your debt is eating up most of your income, you are headed for a financial car wreck.
Many people just “wing it” with their finances and spend money as they feel the need/desire to. Financially speaking, that is the equivalent of trying to drive through the rain without windshield wipers. Without clear visibility, you can’t really see the road ahead. Start by making a list of your expenses, and it should include all your expenses, not just reoccurring monthly bills. Factor in costs like food, gas, parking, etc. While you can’t plan for every single expense, you can account for most of them. Set reasonable limits on personal expenses and stick to them. The first step in managing your debt is to know exactly where your money is going every month.
Your budget doesn’t have to be a complicated spreadsheet. Even just a pencil and paper list of your income and expenses is sufficient. If you have trouble figuring out what appropriate amounts to budget for certain things, then track your spending for a month and keep your receipts. By looking at your shopping habits, you can figure out if your budget goals are realistic or not.
Tackling the Cable Bill
The average monthly cost for pay-tv was $86 in 2011. Within the next two years, that number is expected to rise to $123 per month. Don’t make the mistake of just looking at the total due on your cable bill and paying it without asking any questions. Pay attention to each line item on the bill and make sure that you know exactly what you’re paying for.
Scrutinize your bill and don’t be afraid to call the service provider and question charges that you don’t understand. There is a very good chance that you may be paying for services that you don’t even know you have. If you don’t watch television a lot, you should also consider ditching cable and explore streaming video options online. Many networks now make full episodes of popular shows available online for free.
Next Up: The Phone
While some people find cell phones to be an economical alternative to traditional landlines, many people feel they need both. The question you should ask yourself is should you break up with your landline? Most cell phone plans offer free long distance and you can easily find plans with unlimited minutes. Voice over Internet Protocol (VoIP) has become an increasingly popular alternative to traditional phone lines, but do you get enough use out of it to justify the extra $30 or more per month expense?
If you do decide that you have legitimate reasons to have a landline, then examine your phone bill the same way you should look at your cable bill. Are you paying extra charges for directory assistance? Is there a service contract tied to the plan that you really don’t need? Telephone companies are staffed by humans, and humans inevitably make mistakes. Don’t just assume that your bill is always correct because it might not be.
Paper or Plastic
While it is true that you can’t always pay cash for everything, that doesn’t mean you should resort to credit cards either. The typical credit card purchase costs 112% than using cash or a debit card, possibly even more if you have a tendency to make minimum payments and let your balances accrue interest. Make it a general rule that if you don’t have the extra money in your bank account to make a purchase, then you wait until you can afford it.
Don’t confuse “want” purchases with “need” purchases. You need food. You need to a place to live. You don’t need the latest iPhone. Sure, it would be great to have, but not if you have to go into debt to get it. It is perfectly normal to feel a little envious when your friends have the latest and greatest, but keeping up with the Joneses is a sure fire way to get into debt over your head. A little patience can be a huge step towards stopping overspending.
Last, but certainly not least, “going green” isn’t just good for the environment, it is good for your bank account as well. Don’t leave televisions on when nobody is watching them. Turn off lights when you leave a room. Keep your rooms at a comfortable temperature, but don’t get carried away running the heater or air conditioners. Don’t keep devices such as your cell phone plugged in after they are already charged. As simple as these tips sound, they can be big money savers.
Outside of your rent or mortgage, utility bills are likely the second biggest chunk of your household budget. While you may not like having to remind your family members that things like electricity and water cost money, it is a necessary “evil” and the effort will be well worth it. Electric and water providers usually show usage amounts on your monthly bill. Track your usage each month and make it a point to reduce that amount gradually each month.
Living la vida frugal isn’t always easy. Admittedly, it can be a bit frustrating. The best way to relieve the pressure of tightening your finances is to go ahead and splurge occasionally, but make it a planned expense. Put aside a little money in your budget so that you can treat yourself to a night out once a week or save up for a vacation. You don’t have to deprive yourself of everything, just save your money for meaningful uses instead of wasting it needlessly.
About the Author: Tony Standin is a personal finance specialist with a passion for helping others learn to live healthier financial lives through budgeting, credit repair, and frugal living.