When Making Budget Cuts Look At The Big Items First
By David Dierking
When people make the decision to dive into the family budget and make some cuts to account for a job loss, new member of the family or just to save a few extra dollars, they usually have the best of intentions at heart. They want to live within their means and be financially responsible. They just may not be going about it the right way.
For some reason, whenever the talk turns to budgeting or saving money the first thing that people inevitably mention is a $5 latte at Starbucks. It’s the one thing they claim they’d need to give up in a budget cut. If you or someone in your family has just lost a job, for instance, and you have one $5 latte every day, you can cut the lattes out of your budget and save $150 a month. But if you’re looking to go from two incomes down to one, $150 a month saving just isn’t going to cut it. You need to go bigger. Much bigger.
People like to look at the small easy things they can give up in their budget – the lattes, the newspaper subscription, maybe even eating out once a week. Targeting the smaller stuff is all well and good but if you need to make major changes to your budget you’re going to have to bite the bullet and start cutting out the big stuff.
How about your mortgage for starters? If you’ve still got an interest rate that 1% or more above current rates you may still be able to take advantage of a refinance. A refinance at a similar term to your current mortgage could net a savings of at least a couple hundred dollars a month. If the situation is dire, look to refinance into a longer-term loan where the monthly savings could be even greater (although your lender may not like this idea and you’re ultimately adding additional interest payments over the life of the loan).
What about day care costs? If you’re going to be staying home without a job, keep the kids at home with you. Day care costs vary widely from state to state but having your kids at home could net you well over a thousand dollars a month in savings.
And be sure to consider your cable television bill. Once you consider basic cable service, premium cable service, movie on demand rentals and extras, your monthly bill could be approaching $200 a month. Cut your cable service altogether. Most networks stream episodes of their shows within a day of it airing on TV. Anything else you want to see? Check out Hulu which has dozens of programs available for free viewing online.
Finally, your vehicle. Are you driving a relatively new car or a car that’s on a lease? Get rid of it and trade it in more a reliable used model that has plenty of miles on it. It may not be sexy to drive around in but it’ll get you from point A to point B all the same and you can eliminate a potentially several hundred dollar monthly payment.
Nobody said making these changes would be easy or pleasant. But if you’re in the position of needing to make major spending cuts, they could be necessary. It could be the difference between making it through the storm and racking up a huge mountain of debt.
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