A Household Budget for Hard Times

There are a couple of things that you must accept about creating a "SURVIVAL" budget for household spending. First is that you have to have a budget. It does not matter how much income you have, if you do not control spending it within the constraints of a family budget the money seems like it just evaporates. If you spent and borrowed during the good times, this is going to be a particularly enlightening exercise. You will understand the opportunity you just missed.

Second is that when you get down to real needs, you do not need that much to survive. All you need is food and shelter. Everything else is optional. At the very least it is up for review and can be cut to a minimum. This sounds a bit harsh and it is. I know it is doable because we did it. I took a 50% income cut 17 years ago and so I went to work on my budget. It took me 3 years to peal all of the unnecessary expenditures out of my budget. After that it was interesting because I was making half as much but I had more spending money for me. The reward is that after 10 years of biting the budgetary bullet your balance sheet starts to blossom and your net worth starts gaining as much through returns on investments as it does from your savings inputs. You gain the power and control over your finances and your future that were always so elusive.

Income:

A lot of folks have been laid off or have had their hours cut. For most families someone is still working. So how do you turn this lemon of reduced income into lemonade? Well the person who has time on their hands puts them to work cutting the costs on the spending side of the budget. The interesting development that you will discover is that you can save more money by managing your spending properly than you can earn by working to make a second income. You can be like the little hamster that gets off of the wheel in his cage. So let’s look at where you can save money every day.

Shelter and Food:

You should only be spending a maximum of 30% of your income on shelter. If your income has been reduced and/or you are beyond that guideline, you need to change your circumstances. If it means moving to a less prestigious neighborhood then take the time and make the effort to make the move. If the second job comes back or you find such relief from reducing costs, stay with this reduced situation and make up for some lost years of savings and investing.

With all of the extra time on your hands one of the places you can reduce expenses dramatically is on your food budget. If you are raising a young family, the potential is huge. You save in 2 ways. Use the extra time you have to shop. By shopping local butchers, bakeries and specialty shops you can good excellent food quality for reduced prices. Join clubstores and save on bulk items if your herd eats by the bale. I do not know how I would have fed my group through the "survival" years if it were not for Costco. Then learn how to cook from scratch. Learn how to make soups and stews. You can provide a nutritious, delicious and healthy diet for your family at a fraction of the cost of processed foods. You have time on your hands…make it work for you.

Necessities:

Shelter brings a host of other bills. You need to heat/cool the place and pay for water and utilities. With time on your hands you can pay attention to reducing these monthly costs. Pay attention to thermostat setting and don’t hesitate to resort to the power of positive nagging the young ones to keep costs down. The phone bill has always been a challenge to control. Modern cell phone plans have ambiguous logic and exciting products that are tempting but unnecessary. Clothing is the third of the big necessities but a fashion wardrobe is not. Nice clothing can be fixed, mended and cleaned for quite some time before it wears out. If you have kids they will grow through some clothes so keep that in mind when buying for them.

You need transportation. However a lot of folks waste a lot of budget on a vehicle that is extravagant. Some of the richest men in the world drive old cars and just keep them well maintained. If you want to survive and prosper, learn from them. Buy an older car for cash and find a good mechanic. You will need to insure it and your health. You have time so shop for the best price. In these times it is important to pursue a job with a good medical insurance plan.

Everything else is indulgence and extravagance:

It is not a modern phenomenon. A lot of folks through the ages have "wants" confused with "needs". Some folks think they need an annual tropical vacation. They think they need the latest appliances and electronics. They think they need leather furniture and expensive dishes. They think they need to dine out and spend money to be served drinks. I can go on but you have the point. All this is optional and you can do without. If you want to give to charity give your time. The final "think you need" item is that folks think that it is okay to borrow money to do all of these things. They do not borrow for a week or two but this money goes as debt where there is no plan to pay it off. That is financial suicide.

There are ways to trim these budget items. There are low cost ways of doing anything if you just explore them. You just need to find out how to get your exercise and entertainment for a lower cost and stay with the program to keep them low.

The important thing about cutting costs out of your budget is you don’t have to earn as much to have the same life style. To make a dollar of spending money you need to make $1.50 to $2.00 of income. Half of your earned income goes to the cost of making the money and the cost of taxes on the money you make. Reduce your demand for material things and you reduce you need to join the rat race.

If you succeed and it will probably take you a decade, the impressions of this time will stick with you for a lifetime. To make nice meals takes time to shop for good quality. I enjoy my home prepared and home cooked meals to the point that I find it difficult to enjoy dining out. The quality is not good, the dining room is noisy and the service is often mediocre. Most of the time, the food upsets my digestion. You will find the self reliance of a positive cash flow budget is empowering and liberating. These feelings are addictive and you will choose to never go back to your old ways.

Think Your Money
Financial Therapy to heal your household finances.