This is the transcript version of the Budget 911 personal finance course. Click here view the original course.
If you’re facing a financial emergency, you’ve come to the right place. The FIT Academy is part of Credit.org, a comprehensive online portal of financial education that offers personal finance articles, webinars, local seminars, written material, and counseling services.
There are additional resources that accompany this course including the how-to-guide, pre and post quizzes, presentation slides, and a list of useful websites. By taking and passing the pre and post quizzes, you will receive your customized document of achievement.
Let’s get started. This course will teach you how to respond to a budget emergency by saving money and living a wallet-friendly lifestyle.
When you’re facing a financial emergency and need to control your spending or free up some of your income to build your savings, you need to start by separating your expenses into two categories.
The two basic types of expenses needs and wants. Needs are things that are essential to your everyday life, while wants are discretionary expenses that you could live without.
Another way to look at this is the fact that needs are usually FIXED expenses, while wants are usually VARIABLE expenses.
Examples of needs include your mortgage or rent payment, utility bills, transportation costs, and food (not including fast food or dining out). These necessary expenses should be the first items you pay every month.
Discretionary expenses, or wants, include things like cable television, designer clothing, magazine subscriptions, and other non-essential expenses. If you are in a “Budget 911” emergency, you will have to go without some of your wants until your situation is resolved. Once you are able to increase your income and grow your savings, you may be able to bring back some “want” items into your budget.
When deciding if an expense is a want vs. a need, a key rule to remember is: Anything that is necessary for you to earn a living is a need. For example, if you need reliable transportation or professional attire for your job, then these things can safely be considered needs.
Now that we know how to categorize an expense into a want or a need, we can start by looking at your household expenses.
Most people facing a budget shortfall will have to begin by reducing their household expenses to make their budget work. Each person’s budget is different, so these are only a few ideas to get started.
For most of us, the mortgage payment or rent is our largest expense. This obligation is your most important, and should be the first bill you pay every month, but that doesn’t mean you shouldn’t try to find ways to reduce the size of your monthly house payment or rent.
If you are a homeowner, refinancing can leave you with a lower monthly payment and even a lower interest rate. You can also talk to a HUD-approved housing counselor to find out if you qualify for any special homeownership preservation programs.
If you rent and your payment is too high, this is an excellent time to take advantage of the weak housing market and find a less expensive rental.
If money is especially tight, you might consider moving in with family, or letting relatives move in with you. Or if you already have someone staying with you, like an adult child for example, you should ask them to pitch in and help with the household bills.
An easy way to begin reducing your household expenses to is to make sure your home is energy efficient. Begin by making sure your house is well insulated, and install weather stripping on your drafty doors and windows. Turn your thermostat down, both on your furnace and your water heater. Try to keep your AC at about 78 degrees in the summer, and about 68-70 in the winter. Consider upgrading to more efficient home equipment.
You might be eligible for a rebate from your utility company or a tax rebate if you increase the energy efficiency of your home appliances.
An easy way to begin lowering your energy costs today is by unplugging all appliances you aren’t using. Even though they seem to be turned off, they still cycle electricity when not in use.
Weather permitting; use a clothesline instead of a dryer when you do the laundry. And if you have clothing that must be dry-cleaned, but are on a tight budget, put it away in storage and avoid that expense for now.
And finally, close off rooms when no one is in them, and only cool or heat the rooms you are in.
Let’s move on to utilities. One utility where many of us spend more than we should is phone services. Do you have both a cell phone and a landline? Maybe it’s time to get rid of one of them, or downgrade your plans.
For emergencies, it is recommended you still keep a landline so just downgrade to a local calling plan and use your cell phone to make your long distance calls if your mobile plan permits it. You can also use Google Voice or Skype to make free calls on the internet. Also, don’t use 411 directory assistance, just find a computer and search for free.
If you’re paying extra for caller ID, voicemail, or call forwarding on your landline, cancel those extra services to bring your monthly bill down.
On your cell phone plan, review your monthly statements and see if you could get by with a cheaper plan, or do without things like texting and mobile internet access.
Another utility you can probably do without is cable or satellite television. With the emergence of the digital TV standard in 2010, there are now many free over the air channels. If you are tied into a long-term contact, figure out if the early termination fee is worth the expense.
Auto expenses are roughly a quarter of the typical household’s budget. To cut down on these costs, begin by reviewing your insurance coverage and see if there’s anything you can do without. To reduce even further you could consider raising your deductibles to cut your monthly rate.
When it comes to insurance, don’t be afraid to contact your insurance agent and talk about ways to lower your rate. Your agent doesn’t want to lose your business to a competitor, so he or she will should help you.
If you’ve got a car that is costing you too much, can you trade down to something cheaper, or switch to a more fuel-efficient vehicle? Make sure you have something reliable, though. Being able to get to work and preserving your income stream should be your top priority.
Speaking of getting to work, is it possible for you to join a car pool to save on gasoline costs?
Now that we have covered housing and transportation, let’s move on to food, and more specifically grocery expenses.
Studies show that you can cut your grocery budget by up to 19% by shopping at multiple stores. It helps to plan ahead, so you know which things you plan to get from which store. Avoid driving back and forth while comparison shopping, or you’ll end up wasting both time and money.
Get in the habit of preparing your own meals. Whether you dine out or buy prepared foods from the grocery store, you’re spending more money than you have to. Spend part of your day off preparing extra meals and freezing them. That will help you get dinner on the table when you don’t have time to cook from scratch.
Find out if there’s a farmers’ market in your area. You can get produce there that is fresher, healthier, and less expensive. You might not have as much to choose from, but you won’t be paying for the cost of shipping food from halfway around the world.
Choose in-season vegetables and fruits to save money. Out of season items usually have a higher markup price.
Try not to shop at the grocery store when you’re tired, hungry, or if you have children with you. People spend more depending on their mood; don’t go shopping unless you are organized and ready to spend carefully.
When checking out, pay attention to your receipts. Some stores will discount items that don’t ring up correctly, and it happens more often than you might think.
Sign up for your store’s rewards program and shop around for products that are specially priced for members. There usually isn’t a fee to participate in these programs, so join.
If you’re shopping for items that aren’t groceries, like over-the-counter medicines and other pharmacy items, try not to buy them at the grocery store. You will usually get a better deal by shopping at an actual pharmacy, Wal-Mart or Target
Don’t buy food that you’ll never eat. Studies have shown that 12 to 25% of edible food purchased in the United States goes to waste. If you buy something close to its expiration date to save money, plan to use it right away or freeze it for future use.
Try to figure out how much food you consume in a week by writing down everything you actually ate. Then you can use that list as a basis for your next grocery shopping trip.
Did you know Americans discard 11 billion pounds of fruit and vegetables every year? Every spoiled piece of fruit or rotten vegetable is a drain on your budget. Again, try to buy only the amount of food that you know you will eat. If you think you are buying too little, then plan to buy a bit extra next time until you figure out what quantity is good for you.
Keeping in the theme of grocery shopping, using coupons can be looked at as a source of extra income on your personal budget. Every dollar a coupon saves you is like a dollar earned. As long as you don’t let a coupon lure you into buying something you don’t need, you’ll come out ahead.
Besides the Sunday paper, check magazines; especially those found in the grocery store’s checkout lane. There are also popular websites that offer coupons, like couponcabin.com, ebates.com, keycode.com, and ecoupons.com.
If you don’t like to carry around coupons, try to grab the flyer at the entrance and see what items are on sale.
Many grocery stores will print coupons tailored to your shopping habits, sometimes right on the back of your receipt. Don’t just throw these away—these coupons are more likely to be useful to you than anything you’ll find in a magazine.
Some stores double the value of manufacturer’s coupons. These are excellent deals that shouldn’t be passed up. Likewise, be on the lookout for opportunities to use both the manufacturer’s coupon and a store’s coupon to increase your savings.
Get organized when shopping with coupons. Use a shoebox, envelopes, or plastic bags to store the coupons you plan to use. You might want to use an expandable container to get your coupons in the right order to present to the cashier. All it takes is a little extra preparation to use coupons without causing a traffic jam in the checkout line. You’ll get big savings that will make it worth the extra effort.
You can’t control when coupons will come along or when they expire. Be flexible, and use coupons to stock up in advance.
You can also use social networks to get access to savings. If you use facebook or twitter, you can “like” or follow a retailer or local business you frequently buy from. They usually post about sales and discounts, and keep you up to date about new product releases, recalls, and other opportunities to save.
And last, always take advantage of rebate offers when you purchase necessary items. Manufacturers ¬offer rebates knowing that up to 60% of them will never be redeemed. Make sure you actually follow through and always send in for rebates, no matter how much is being offered. It might take a few weeks to receive the rebate, but once it does it’s more money in the bank.
Now that we have taken care of our necessary items or NEEDS, we can move on to wants or discretionary expenses.
We find that no matter how hard people try to create a workable spending plan, there are common budget busters that sink the ship. These expenses are almost always in the wants category.
Food is a common budget buster. It is five times more expensive to dine out than it is to prepare meals for yourself. If you are over budget on food spending, it’s probably because you eat out too often. Try to minimize dining out to no more than once a month if you are on a really tight budget.
Entertainment is another common budget buster. Entertainment spending often breaks the budget because it is impulsive and difficult to plan for. In any given month, it’s hard to know in advance how many times your friends or coworkers will invite you to go out on the town.
Try starting a discretionary fund for your entertainment expenses. Have enough funds set aside for unpredictable entertainment expenses that pop up… but when that fund is spent, be disciplined and tell your friends that you won’t be able to join them again until next month
Retail shopping is another impulsive way that many consumers go over budget. Shopping should not be considered a form of entertainment. If you feel you must visit the mall, leave your money at home and stick to window-shopping only. Some people may need “shopping therapy”—if spending money is what you do to feel better or have a good time, you are never going to be truly financially free.
When it comes to retail shopping, the most common type of overspending isn’t buying things you don’t need; it’s paying too much for things. Avoid overpaying for what you buy by comparison-shopping. Also keep an eye out for sales and promotions, buy in bulk to save on household items, and consider our advice about coupons.
Another common budget buster is going to the movies. Movies are the number one entertainment outlet for Americans, and ticket prices keep climbing.
To spend less at the cinema, use coupons or see matinee shows whenever you can. Also, plan ahead and only take a trip to the movie theatre when you have set aside money in your budget to pay for it. You can also replace a movie night out by renting a one-day movie or finding a free movie on tv.
Beware of the snack bar. Everyone knows that high-priced candy, popcorn and soft drinks are where movie theatres really make their money. Treat this like going to the grocery store: don’t go hungry. Avoid the snack bar altogether and you avoid paying the 1,275% markup theater concession stands place on popcorn.
Any one of the tips and ideas we’ve offered in this course can help you save money. Add them all together and you can make a big impact on your overall budget. We’ve helped thousands of consumers face financial emergencies and better manage their money, so trust us when we say that it is possible to turn a lot of small adjustments to your financial behavior into big savings down the line.
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