You may have to pare down to a bare-bones budget if a two-income household loses one income from a job layoff, or if you are contemplating divorce. When you look at what you have, it may be difficult to determine what you should cut and what you shouldn’t cut.
No Room for Extras
You may have “extras" you could do without, such as unlimited cell phone usage, several lines for your family, movie packages on cable television and several other things. When you cut out everything but the necessities, you will be surprised at how much you'll save. When you look at your monthly savings, it doesn’t seem like a lot, but when you multiply everything by 12 months, you can see that things add up quickly.
Take Stock of Your Bills
Write down all of your bills. If the bills vary from month to month, write down the most you spent during the past 12 months. For example, electricity varies. Check your electric bills from the current date through the past 12 months. Write down the highest amount for that particular bill.
Arrange the bills in two columns: Necessary and Want. Since you must have water and electric, those bills go into the column marked “Necessary." Cable and cell phones go into the column marked “Want." Car payments and house payments go into the “Necessary" column. This could be done on a scrap piece of paper. This part is just to determine what you are paying now and how much you should actually put into the budget.
Determine What Can Go
Starting with electric, determine ways you can lower the electric bill. If you leave a television on all night or a light on all night, you can cut your electric bill quite a bit. Remember to turn the television off. Change out a higher wattage light bulb for a lower wattage, low-energy bulb. If you have a habit of washing less than a full load of laundry, break the habit. Only do full loads of laundry — this not only saves electricity, it saves water, which will lower your water and septic bills.
If you have lines with unlimited access for everyone in the house, get rid of the expensive plans and get a less expensive plan. Advise your family that until the financial situation gets better, there will be no more unlimited texting or accessing the Internet from the phones. The average smartphone plan runs about $30 as of August 2011 (one that includes an internet package). If there are four people using a smartphone, you can cut $120 per month, which adds up to $1,440 per year.
Cut all the cable television extras out for now. When you become stable again, you can add things back in.
Change Your Shopping Habits
If you are used to buying brand names, switch to store brands. The store brands, in most cases, are just as good as the name brands. Certain things are the same — just in different packaging. If you are used to buying clothes every few weeks or even once per month, you can cut that out of your budget, too, until you can get back on financial track. Make sure you leave some room in the budget for back-to-school supplies and other items you may need to purchase infrequently.
Add Up Your Savings
To determine how much money you can save, and whether you need to or want to make additional cuts, work with your cuts for two months. Check the bills that come in and keep track of how much you spend on groceries. These new numbers are going to be the numbers for your bare-bones budget. If the cuts are still not enough, look harder to determine where else you can save. If you hire someone to cut the lawn for you, you might want to invest in an inexpensive or used push mower and do the lawn yourself. You will break even on the mower within a month or two, depending on what the landscaper charges. You can find used mowers at pawn shops and thrift stores.
Creating the Budget
Set up a spreadsheet — whether you use a spreadsheet program (such as Microsoft Excel) or draw it by hand, it is the same, except you have to add the columns up yourself if you draw it by hand. List your monthly income at the top of the budget. List every bill you must pay during the month. Insert the amount you cannot go over next to each bill. Add additional columns next to each bill. Each month, enter the amounts you spend on each bill. You will be able to see whether you met the budget, came in under budget, or went over budget. During the next month, you can make adjustments by looking for more deals on food — use coupons or look for sales — using less electricity, and making sure that family members are doing their part by turning off lights, not using services that were removed from phones, and maybe cutting more channels from the cable television line up.
When times are tough, a bare-bones budget is the best way to control your expeditures until you are back on your feet.
Please be sure to check out the other tips and strategies in Bright Hub's collection of personal and household budgeting guides.