Now for Part 3 of the Budget Saving Strategy that Works. Over the past few weeks, I’ve been sharing a simple strategy that I use to radically reduce and reset my budget when I’m going through a period of overspending. In Part 1 I introduced you to a imaginary over-spender named Sarah. In Part 2 I showed you the outline of the strategy. For Part 3 I want to really walk you through how I go about implementing this strategy in greater detail. Let’s revisit this through the lens of the hypothetical budget that we created in Part 1:
As you can see, our subject is overspending her monthly income of $6,000 by $54 and is on the brink of financial trouble. I say this because Sarah isn’t a retiree drawing down her savings, she’s a young urban professional with $2,000 in the bank. She makes a great income but she’s barely able to pay her bills. Her finances are a constant source of anxiety and bewilderment.
In order to get Sarah’s expenses on track with reality, I set a goal of reducing her expenses by $1500 a month. If she’s able to do this, this plan will help her generate a one month emergency fund in the next three months — and she’ll be well on her way to a healthy cash cushion of six to eight months expenses in a few years. While $1500 is a lofty goal, I believe that by leveraging your innate creative ability anyone can make a radical transformation in their spending if necessary.
Here are the step by step instructions that I outlined in Part 2, but this time I’m going to walk you through how I would approach this exercise for tackling Sarah’s expenses, so it’s as clear as possible.
The budget saving strategy that works:
Step 1: Download the Excel template below and enter in your monthly budget and actuals by category.
For reference, I updated the budgeting spreadsheet to improve usability. You can download it here:
(Will open links to GoogleDoc where you can save to Excel or print)
I’ve updated the spreadsheet with Sarah’s average monthly expenses. Sarah doesn’t have a budget so I didn’t input anything in that column. I’m avoiding the yellow cells which are summing up all my inputs:
Step 2: Once you’ve assembled your budget, print it out.
Step 3: Brainstorm. With a pen, go category by category and brainstorm ideas on the ways that you can reduce your expenses. Write down every idea that comes to mind, no matter how ridiculous. Do this until you get to the end of the list and you’re satisfied that you’ve given adequate consideration to each category.
As you can see, I’ve gone through and jotted down all the ideas I had on each category. Some are unrealistic. Some are unpractical. But Sarah is in need of a serious budget overhaul so no idea is too ridiculous to consider. This next piece is a really important thing to remember. This strategy relies on your brain’s inherent ability to generate lots of ideas rapidly…. if you’re shooting everything down you think of you won’t make any progress.
Step 4: Converge. Highlight all the ideas that you’d be willing to pursue. Go ahead and enter in how much you think that you can save each month. The results will total at the bottom.
Now that we’ve generated ideas, it’s time to choose the best ones and quantify the potential savings. I’ve identified some sacrifices and savings that I think could be made if Sarah were committed to overhauling her expenses. All in all, I generated $2369 in expense saving ideas based on my estimates. This should provide a healthy cushion in case some of the ideas fall through. That brings her net income from a deficit of $54 per month to a surplus of more than $2000. That means she’s well on her way to securing an emergency fund and a 20+% savings rate if she follows through and executes Step 5.
Step 5. Execute. Chase after the big opportunities.
This is the easy and the hard part. This strategy has just given you awareness of a potential problem but it’s up to you to do something about it. You can do it! If you need some more motivation check out these related posts: