Ask the Experts: How to save money on a tight budget

11/26/2013

Ask the Experts: How do I save money?

I have no idea where to begin with saving money. I am a 19-year-old sophomore at a public university. I work part-time as a security guard and make a decent wage. I make roughly a bit over $1,000 a month. I was wondering if there is any way to save money, because my paycheck seems to disappear and I cannot make heads or tails of a budgeting system alone. Anything helps. – Timothy

Hi Timothy –

It’s tough to save money when you don’t know where your money is going or if you even have money available to save. So the first step is putting together a simple budget and figuring out how much money you have to work with.

Your budget can have varying levels of detail, but if you’re just starting out it’s probably best to stick to the basics. You’ll need to figure out four things: your income, your fixed expenses, your periodic expenses and your variable expenses.

Income

Your income should be the easiest part. If you’re a salaried employee, your paychecks are going to be the same every time, so that keeps things simple. If you’re paid hourly, compare your last three or four paychecks to determine the average (presuming the last few weeks represent the norm – if you’ve seen an increase or decrease in hours that isn’t going to last, keep that in mind).

To get an accurate monthly income, multiple your weekly income by 52 (or your bi-weekly income by 26) and divide by 12. Now you know how much money you have to work with every month.

Fixed expenses

Fixed expenses are the ones you pay regularly that don’t change much month-to-month.

Rent/mortgage
Car payments
Car insurance
Debt payments (credit cards, unsecured loans, medical bills, etc.)
Out-of-pocket insurance payments (life, health, rental, etc.)
Child support, garnishments, etc.

Check your monthly bills and checking account statements to figure out how much you spend each month on fixed expenses and make a note of that amount.

Periodic expenses

Periodic expenses are regular expenses that you can’t avoid spending, but they’re less frequent than fixed expenses.

Car repairs, inspection and registration
Home maintenance
Appliance repair
Gift giving

It’s very difficult to be 100 percent accurate when adding periodic expenses to your budget, but it’s important that you try your best, because if you haven’t adequately planned for them your budget will fall apart pretty quickly.

Your best bet is to figure out how much you’ve spent in each category over the past 12 months and divide that number by 12 to give you a rough monthly figure.

Variable expenses

Variable expenses are basically everything else.

Food
Utilities
Phone
TV/Internet
Gas
Clothing
Cleaning supplies
Tuition
Doctor/dentist appointments
Entertainment

These are called variable expenses because they can often fluctuate significantly from month to month. If your spending is exceeding your income or you’re looking to free up money for saving, then variable expenses are usually your first stop.

To figure out your variables you can look through old receipts and bank statements, but probably the easiest way is to start bringing a little notebook with you and writing down every transaction. Don’t try to change the way you spend – at least not initially. Just spend money as you normally would and write it all down.

After a few weeks you’ll start to see a fairly complete picture of your finances – how much money comes in and where it all goes.

Saving money

If you’re breaking even every month and want to start building your savings, then either your income needs to increase or your spending needs to decrease.

Ways to increase your income:

Of course, if you’re attending school full-time it may be difficult to find the time to increase your income. If that’s the case, you’ll need to take a long look at your expenses.

Cutting back expenses

Where can you cut back? That might be hard to determine on first glance. One reference you can use is the IRS National Standards. The standards are used for IRS purposes, but the numbers are based off of the Bureau of Labor Statistics’ annual Consumer Expenditure Survey and give a rough snapshot of how much the average household (based on size) spends on what they consider the five necessary variable expenses: food, housekeeping supplies, apparel and services, personal care products and services, and miscellaneous.

The IRS also provides local standards for transportation costs, as well as housing and utility costs. Your spending will vary of course, but comparing your expenses against the national average should give you a clue if you’re noticeably overspending in any category.

If you can’t make more money and you’re not overspending anywhere, then things are a little trickier. Now might be a tough time to start building your savings and you’ll have to dig a little deeper. Try some of these money-saving ideas out and see if they work for your situation.

Finally, if you’re having a hard time putting it all together don’t hesitate to reach out and speak to an expert. Credit counseling isn’t just about fighting debt – it’s also about creating a sustainable budget that gets you where you want to be. Give us a call and we can help you sort out your finances today.

Good luck!