Are your expenses consistently higher than your income?

expenses_pic_1.jpgWhen expenses are higher than your income it means several things.

1. If unchecked, you’ll be creating debt once your savings cushion is gone.

2. Because of No. 1, your present situation is unsustainable.

3. You can change it for the better, before the worst happens.

Just like how the balance in your bank account doesn’t always give you the whole story, the total of your income minus your expenses is an easy depiction of where you are, but not where you could be.

If you find yourself in this situation, you can either decide you have an income problem and need to earn more money or you have an spending problem and need to cut back. If you have a way to earn extra money, take advantage of it. Here’s a few tips on reducing expenses to make a difference in your budget.

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Categorize Your Expenses

Divide them into categories to take a good look at just where your money is going. First, look at the ones you can’t get rid of and then look at the others in order of importance or cost or however you want to organize them. No matter what, you’ll have a power bill, rent or mortgage payment and anything else you won’t be able to shed.

Look and see if there are opportunities to reduce your costs. You may not be able to go without a phone, but you could find a less expensive plan. You can’t disconnect your power, but you can conserve energy to lessen your power bill. Organizing your bills can also help you see which services you can’t possibly get rid of and which ones are ripe for getting axed.

Remember Periodic Expenses

Second, make sure you have listed each and every bill, even the ones that only come every quarter, six months or year. This might add to your total instead of providing relief, but if you’re able to plan for them, you’ll be better off when the bills are due.

Eliminate the Discretionary Ones

Third, find expense that is discretionary in some form. If you haven’t already figured out what you need to cut, start picking out the least used or least advantageous purchases or bills. Those subscriptions you could cancel tomorrow if you wanted, or all those trips to the coffee shop or taco cart. The name gives it away, but these are items where you make choices to spend money. They aren’t required expenditures. Cancel whatever you don’t need. Find alternatives to spending more money than you have to so you’re living within your means.

Once you’re living on less than your income, what does that mean?

You’ll be saving money and eliminating debt. There isn’t any other way to build wealth or an emergency fund or any other type of savings except to spend less than you make. Once you have that down, it’s just determining where you’re putting your money and to what use. I know it sounds so simple, but it is that easy.

If you need help tracking your income and transactions, Mvelopes provides you with the tools you need to create a budget and stay on top of your finances so you can reach your goals.

 

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