Tools and Resources

The Budget Saving Strategy that Works: Part 3, Putting it all together

by Chris on December 28, 2010

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:

Sarah's expenses -- note the monthly overdraft!

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)

Budget Saving Strategy Worksheet (Blank)

Budget Saving Strategy Worksheet (with Sarah’s inputs)

Step 1

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.

Step 3

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.

Step 4

The results

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:

Getting unstuck from the debt-grip

The benefits of an emergency fund

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The Budget Saving Strategy that Works: Part 2

by Chris on December 18, 2010

in Tools and Resources

Image courtesy of @pilottage

Sometimes you just need to kick into high gear and rapidly decrease your expenses. Whether you’re just getting started and need a frugal jumpstart or you’re looking to identify additional opportunities to take achieve your goals more quickly, I’ve got a solid five step strategy that works to identify money saving opportunities at rapid speed. In Part 1 of the Budget Saving Strategy we examined the hypothetical budget of a high income high expense person that is living well above her means. In this post, I lay out the strategy and show you how to implement it.

Here’s how it works:

1. Download the Excel template below and enter in your monthly budget and actuals by category. It’s most helpful if you can categorize your last three months or so of expenses — this is where using an automated service like Mint or Quicken becomes really useful. If you’re estimating your expenses, ensure that you include any infrequent charges (auto insurance, car registration, income taxes, oil changes, for instance) in addition to your ongoing expenses. This exercise will be 5x more valuable and effective if you have (or create) a budget that pulls from your actual transactions.

BudgetSavingSpreadsheet (Click and download the GoogleDoc)

2. Print it out. Once you’ve assembled your budget, print it out.

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.

4. Converge. Using a highlighter, mark all the ideas that you think you’d like to pursue. Go ahead and enter in how much you think that you can save each month. The results will total at the bottom.

5. Execute. Chase after the big opportunities.

Let me know if you have any questions, need any help, or have any interesting results to share. In the next post, I’ll share a list of money saving ideas by category that I’ve generated as thought starters.

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The Budget Saving Strategy that Works: Part 1

by Chris on December 14, 2010

in Budgeting,Personal Finance,Tools and Resources

I have many friends that are high paid corporate climbers but lousy managers of their finances. They’re in the station of life where they are making a lot of money and have the outward appearance of being well off, but they have no savings to speak of. Because of this, they’re working paycheck to paycheck and teetering on the brink of financial calamity if an emergency were to happen.

I get it. I used to live this way. It’s no fun.

We suffer through fear and anxiety about our money, avoiding our bank balances because we’re not sure what we will find. Maybe an unsuspecting insurance payment will post, our account will overdraw or a check will bounce, and we wonder how we’ll make next month’s rent. We rearrange our upcoming obligations in our mind and try to see if the next few weeks is going to work out.

Meet Sarah.

Sarah might be pretty typical of this group of high income and high expense individuals:

Sarah has a high paying job and bring home $72,000 per year. Unfortunately, she spends just about that much. She lives paycheck to paycheck and has only $2,000 in the bank, just enough to cover rent for next month and a few other bills. This is puzzling because she makes a lot — the money should be piling up, right? She has no idea where it all goes goes. All she knows is that at the end of the month, there’s just enough.

Her monthly spending might look like this:

She’s spending more than she makes and she’s on the brink of financial disaster. She’s living above her means, and spending tons of money on discretionary luxuries. However, she doesn’t have a lot to show for it. An interesting insight on Sarah’s expenses — there is basically nothing that she spends money on in a given month that she is extracting any value from or isn’t going to radically depreciate…. heck, she rents her apartment, leases her car, and has no equity in anything to speak of. She has $5,000 in credit card debt, but she’s not going to be able to make even the minimum payment because she has nothing to spare. If she were to lose her job, she’s in deep trouble!

It sounds really obvious, but if you want to save money, you need to live below your means.

Stay Tuned.

Later this week, I’m going to introduce a strategy that I have used to dramatically reduce my expenses. I believe that it can be helpful regardless of whether you’re a new budgeter or a veteran. On the surface, it doesn’t look like much, but I can testify that it has gotten me fantastic results. I’ve personally used this strategy this year to save thousands without having to make any big trade-offs.

Need help?

If you’re in this situation and would like help getting your budget on track, I’d like to offer you a free budget review. I can help you set a monthly budget and help you identify opportunities to save money. All I ask in exchange is that you allow me to blog about the experience, anonymously if you like. Email me at the contact form on the “About Page” if you want further information.

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