Tips to Living on a Budget

Tips to Living on a Budget

Kerry decided to quit her job in October of 2013, which means we’ve been living over a year now just on one salary. Actually, Kerry had decided to quit a lot earlier than that, but she actually quit in October. Kerry giving up her income, and our decision to try to live on just what I bring home was a huge, difficult decision for us. We’ve been successful with it so far, so we wanted to share some of our “secrets” on how we make it work. These tips might not work for you, or you might find them unnecessary, but this is what has worked for us.

First of all, plan. This might seem kind of obvious, but we didn’t dive into this head first. When Kerry had finally had enough with her job, and decided that she wanted to take some time off, we gave ourselves plenty of time to get prepared. The first thing we did was to live on just my salary for three months. We wanted to see if we could do it. Kerry put all of her money into a savings account, and we only used my paycheck to pay for our needs. Three months seemed like a good amount of time, but honestly, I would recommend going a little longer. Things like car insurance, or a weird home repair, might not pop up during those three months you are testing, so the longer sample size you have, the better.

Realize your lifestyle is going to change. This was a hard one for us to come to terms with, but the fact of the matter is that when we cut our monthly income in half, we had to pretty dramatically change our lives. We looked at what we were spending the most money on and for us it was pretty obvious: restaurants and vacations. We were eating out four, sometimes five nights a week. That’s so expensive! We were also going on a lot of trips. We had to sit down and be real honest with each other: did we want to stop living like that? Was having Kerry home every day worth giving that stuff up?

To us, it was/is. We had, for a few years, wanted to start cooking more. It’s cheaper and healthier. So this was the kick in the butt that we needed. As for traveling … well, we found ways to keep doing that. It just took a little creativity. But let’s be honest, when Kerry and I were both working, we didn’t have to look at our budget when someone needed a new pair of pants. Now we do. That’s different. But it’s also very normal.

Create a budget. It never really occurred to me that to live on a budget, you need to create a budget. That means looking at where you spend money, and then setting limits for yourself each month on what you’re going to spend. Luckily, there are some great tools out there to help with this. We use Mint.com, which is a website and app that tracks your spending. I’ve also heard great things about the site You Need a Budget. Mint is free, and You Need a Budget charges a fee. With Mint we are able to see what we are spending money on each month, and where we are spending more money than we should. Did we go over our groceries budget this month? Okay, that’s fine, we have to then cut back on our shopping budget. I would recommend using whatever tools you have available to help with this (and, again, we really like Mint).

Save money every month. Let’s say, just for kicks, that after taxes, your paycheck gives you $1,000 every month. You might think, “Well then, I should budget so that I spend that exactly and no more.” Wrong. So wrong. You need to budget for less than that. I’ve heard you should budget for 70% but that seems excessive to me. If you can do that, go for it, but I would say aim for 85 to 90 percent, and the rest should go into “unexpected expenses.” Like, for example, I always forget about our car insurance which is due every few months. And then Kerry tells me the bill and I say, “Holy crap why are we paying so much for car insurance? Are we going to be able to afford this?!” Well luckily we can afford it because we make sure to not spend every cent of my paycheck every month.

Get real about needs vs. wants. When Kerry and I had two incomes, sometimes I would say things like, “I need a new laptop.” Did I need one? No. Absolutely not. I wanted a laptop, and we were very lucky to be able to afford one, but I didn’t need it. Now we say things like, “We need milk,” and, “I want a New Nintendo 3DS.” So when Kerry goes shopping tomorrow, she’ll come home with milk. I will keep reading articles about the New Nintendo 3DS, but I’m not going to buy one. Because I can live without one. We’ve got a puppy, what would I do with a portable gaming device anyway?!

Stick to your budget. Okay this is absolutely the hardest part and it’s also the most essential. You have to stick to the budget. Remember those months you spent saving, to see if you could live on a budget? Yeah, don’t “borrow against” that for your first few months, thinking you’ll pay it back. Because you won’t. Did a new video game come out, and you just need to have it this month? Don’t buy it if you don’t have the money. Save for it. Adjust your budget. Spend a few less dollars on beer for the next few months so you can buy that game four months later. It will still be fun in four months, I promise. And may be cheaper!

Living on a budget, really, should be something to do no matter what kind of income you have. Whether you’re a billionaire or just trying to figure out how to pay off credit card debt, a budget is a good idea. You don’t want to spend more than you have, and if we have found that the best way to do that is to really plan ahead. For us, it’s been the best decision we’ve ever made. Balancing out our new “hey you can’t buy a new computer this month” lifestyle with, “Kerry gets to stay home and take care of our lovable new puppy” is perfect.

What budgeting strategy works for you? Do you stick to a formal budget or just wing it? We’d love to hear from you if you have any more tips or tricks!

— Andy