With gas prices pushing budgets to an extreme, you maybe wondering how you can deal with the upcoming winter months and the increase in heating bills-not to mention the holidays. Although we would all like to increase the amount of our income, that's not always realistic, but most of us can trim the costs of our expenses by taking a few basic steps and planning ahead.
Step One: Plan, Plan, Plan
Planning can provide an unlimited potential on savings. Clothing, for example, can be purchased at the end of a season rather than at the beginning. Groceries can be bought based on the sales in the grocery store. Using fresh vegetables and fruits that are in season, especially when purchased from a farmer's market, can save you substantially. Of course buying generic also saves money, but you may not realize that less obvious savings can be found through careful planning.
Always Budget, Always Cash You cannot trim your expenses if you are unaware of where your money goes. First, you need a realistic budget. For budget planning information check out www.bankingquestions.com/manageyourmoney/q_buildbudget.html Keep a journal or write down every time you spend money, even small purchases like a latte or a soda. Once you are aware of how and where you spend your money, decide where you want to trim down. Once you've got a plan in place, always use cash. "Pay" yourself weekly or monthly or whatever works best for you. When the cash is gone, quit spending. If you have cash left over at the end of the month, decide how much of it you want to save and how much you want to spend as a reward to yourself.
On Time, Every time Often bills are paid late not because you don't have the money, but because the deadline simply slips past. Planning and scheduling payments online help you avoid late fees and ultimately saves money. Paying your bills on time is key for cost effective spending because for every bill you pay late, an additional fee is added. Not only do the fees eventually add up, but if you are late paying on credit cards or other loans, the interest rate may actually increase, so that you are not just paying late fees but additional interest. Likewise without planning, you may not have enough money to cover your bills, which can also lead to an overdrawn checking account. For every transaction you do not have enough money to cover, your bank will often charge you a fee, which can frequently cost up to $35 per transaction. Careful planning and budgeting can eliminate most if not all of these charges.
Extra Paycheck If you are in a lower income bracket, particularly if you have children, you may qualify for the Earned Income Tax Credit (EIC). Not only is the credit available when you file your regular income taxes, the credit can also be added to your paycheck. The amount that will be added differs based on your income bracket, but you could receive up to $1712 per year on your paycheck. If you make below $39,783 per year, you may also qualify for the credit at the end of the year. Even if you are normally exempt from filing tax returns or have zero tax liability, you could still receive an EIC credit so you should plan on filing a return. EIC recipients can receive up to $4,716 per year depending on filing status, income level, and dependent status.
Step Two: Some times you have to spend it to save it.
Home Improvement Options Spending money for improvements defies the whole concept of trimming costs, unless the extra expense is worth it in the long run. One good example of spending to save is replacing regular light bulbs with compact florescent ones. The florescent bulbs cost more but they use substantially less electricity and they are better for the environment. Another good investment, especially if you live in an area where heating or cooling your home takes a significant bite out of your monthly budget, is to invest in a programmable thermostat. While you are at work or away from home, your air conditioner or heater gets a break. By the time you are ready to return, the house is back to a comfortable level. Replacing leaky windows or adding to your home's insulation can also significantly lower your heating and cooling bills while also providing you with a potential deduction from your next year's income taxes.
Retirement Plans or Flex Spending Options Most contributions to 401(k) plans and medical flex spending accounts are tax free. Every dollar you invest pre-tax is one more dollar closer to a lower tax bracket and a happier April. More importantly, if your employer offers to match your contributions, your return on your investment is much higher than any return you might see from a simple savings account or a CD. If you invest in a medical flex spending plan, you will also be able to use the money to pay for your medication, your doctor co-pays, and even over-the-counter medication. Without the flex spending plan, you would normally pay tax on your paycheck and then pay these bills. By using pre-tax dollars, you can literally pay the doctor with untaxed money, meaning you have more leftover to pay for groceries or the mortgage.
Buy, Not Rent Purchasing a home is a huge step. If you and your family have been renting, but you have enough cash on hand for a down payment and can afford to make payments, now may be the perfect time to give up the rental in favor of a mortgage. Housing prices are really low right now, and it's a great time to find a bargain. Your mortgage payment could easily be equal to your rental payment, if not lower. As an added bonus, home owners are often rewarded on their taxes, especially if you already itemize deductions.
Buy in Bulk When you buy products in bulk, you can often save quite a bit of money, especially if those items are already on sale. Places like Sam's Club and Costco offer great opportunities to buy normal household items at a lower price. When you buy in bulk, however, make sure that you will be able to use the entire product. If you buy food, for example, and it ruins before consumption, then you throw not only the food away but any savings you might have gained by buying in bulk. Think about teaming up with other family members or friends so you can split the items and the savings.
In the long run, trimming costs from your expenses is about careful planning. Pick a plan, stick with it, and before you know it, you may have a little money put aside for extra bills, the holidays, or even a winter vacation.
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