Kimberly Palmer, Neldwallet
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On Reddit, users recently sought budgeting advice. After itemizing the current budget, users were hoping to find ways to reduce monthly spending and save more money.
Users said they brought just $3,300 in a month and spent about $2,600 on fixed costs like rent and insurance, along with groceries and entertainment line items. The rest was for debt payments and nothing left for savings.
Applying the budget for 50/30/20, it suggests that 50% of takeaway pay should go to needs, 30% to desire, and 20% to save and pay debts above the minimum.
Reddit responders had some good money saving ideas, such as switching to cheaper mobile phone plans and reducing extras like car washes, electronics, fitness classes and more.
We turned to financial experts for their ideas on this topic.
Prioritize the Emergency Fund
The financial experts we interviewed agreed that the top priority for budgeters is to build emergency funds.
“It’s extremely dangerous to have such a tight budget if the emergency fund hasn’t been saved,” said Kristen Vernace, a certified financial planner at Pathways Financial Planning in Portsmouth, New Hampshire.
“If you don’t have a cushion, you can throw away all of the unexpected costs,” she adds.
Filip Telibasa is the owner and agree to Benzina Wealth, Sarasota, Florida. He suggests suspending additional debt payments beyond the minimum to focus on putting at least a month’s worth of emergency savings aside.
Then, if there is an event on a rainy day, it won’t let you go into a deeper hole, he says.
Once you’ve taken a month’s worth of expenses, you can consider prioritizing your high-profit debt before accumulating even bigger savings cushions.
Putting these savings into a high-yield online savings account could provide even more motivation as you are likely to accumulate interest payments.
“It may be more and more motivated to add more money to your account,” he says.
Spend less money, even temporarily
To build that emergency fund, Vernace says, you need to find ways to adjust your spending to put in more savings each month.
“It’s hard to have almost all your income allocated for something and you don’t have a wiggle room,” she says.
To overcome that problem, she suggests looking through all the line items on your credit or debit card statement and finding the area to trim.
Ideas include asking your internet or cable provider for a better rate, cancelling some subscriptions, or even switching to a lower-cost home rental.
These measures need not be permanent, but until they reach a more financially stable state, says Daniel Milks, CFP and founder of Woodmark Advisor in Greenville, South Carolina.
“My suggestion is to really sit down for a short period of time, probably six to 12 months and be proactive about cleaning this,” he says.
Cancelling all non-essential subscriptions and memberships is a good place to start, he adds.
“This doesn’t have to be an eternal lifestyle. It’s about making short-term sacrifices now to create long-term flexibility later,” says Milks.
Proactively repay high profit debt
With basic emergency funds taking care of, high-profit debt can become a higher priority, Terrivasa says. He says that if the interest rate is double digits (if it is common to credit card liabilities), he wants to prioritize paying it as soon as possible.
“The whole idea is opportunity cost. Do you feel that putting these funds elsewhere, such as a 401(k) plan, a Roth IRA, or a savings account, will allow you to earn more than your interest rate?” he asks.
If interest is in double digits, the answer is probably not.
It will bring you more income
The idea of bringing more income can be daunting, but Vernace says it can be a relatively easy lift. One of her clients babysits the dog while she works from home. It brings her extra cash that she enjoys.
Vernace suggests you are looking for a side job that will keep you in control of your schedule that you can do from home.
“It can take you from tough situations to a comfortable situation and give you more breathing chambers,” she says.
Enjoy new habits
Establishing new savings and spending patterns could be “learning opportunities,” says Milks.
“You can get it as a wake-up call and make permanent changes so that it doesn’t fall into the same trap again,” he adds.
Reddit is an online forum where users share their thoughts in “threads” on a variety of topics. Popular sites contain a lot of discussion about financial subjects like preservation and budgeting, so I sifted through the Reddit forum to get a pulse check on how users feel about trimming their spending. People post anonymously, so they cannot check their individual experiences or circumstances.
Kimberly Palmer writes for Nald Wallet. Email: kpalmer@nerdwallet.com. Twitter: @kimberlypalmer.
Article asked on Reddit: How should I trim my monthly budget? It originally appeared in Nerdwallet.
