Cut Out The Bulk From Your Budget

Many of us have faced the struggles of saving money at some point in our lives. Outdated and mismanaged budgets can drag you down and make it feel like you aren't reaching your financial targets. The good news is that it doesn't need to be difficult. Here are some steps you can take help you to cut the bulk out of your budget.

1. Track Your Spending

The first thing you need to do is to have a good idea about where your money is going. You can't cut out the bulk if you don't know where it is.

Here are some tips to keep track of your spending

• Download your credit card statements and bank account statements
• Save all your receipts over the course of a few months
• Determine what automatic payments you are making
• Record your cash purchases

What are some good budgeting tools I can use?

Personally I have always maintained by own spreadsheets, but there are many apps out there that you can use and even link to your bank account. Most banks also help you automatically track and categorize your spending activities when you use your credit or debit card.

2. Allocate Money To Savings And Investing First

Before you plan out how much you want to spend, first set a goal on how much you want to save instead! And don't be afraid to set a more aggressive savings target (you can always amend this later). A "side effect" of setting a goal for your savings first is that it allows you to really think about what you can cut out as you plan out your spending.

Break down your savings into three key categories:

• Emergency Fund
• Investments
• Other Savings Goals

Emergency Fund

An emergency fund is money set aside in case of loss of income (job loss) or an unexpected emergency expense (medical emergency). You should have an emergency fund set aside to cover between 3 and 6 months of your spending needs. This should be very liquid money such as an easily accessible savings account. Find out where your emergency fund ranks in terms of your liquidity tier list.

Investments

All good savings plans requires some sort of investing for the long term. This is money that you are deciding to set aside and will not be using at all for your every day needs. This does not mean you shouldn't be touching your money at all because you do want to be able to take advantage of investment opportunities that come your way. You do want to manage within your investment portfolio, but that will be a topic for another day. For now, set a goal to how much of your income you want to put into your long term investment portfolio.

Other Savings Goals

Outside of your emergency fund and your long term investments, you may have some sizable expenditures you saving up to within the medium term. These are savings that are expected to be depleted within 3 months to 1 year. Some examples are savings towards an upcoming vacation or towards a new car purchase. Although this is money not going into your investment portfolio, it is important to understand that it should also be money set aside on top of your emergency fund.

3. Identify Easy Spending Cuts

Once you have accounted for where all your money has been going, the next thing you can do is identify what you don't need or can live without.

Are you subscribed to a magazine that you never read? Or have you been buying up too much novelty items that only served to clutter up your living space? These are expenditures that can easily bulk up your budget, which you can just as easily cut.

If you are subscribed to 3 different streaming services and only watching one or two movies a month, take the first step to cancel two of them. Once you do, you will start feeling much better as you are already making progress and the next cuts will start feeling easier!

4. Forecast Your Expenses

Project what each necessary item is going to cost you. How much will you be spending on rent, food and transportation? How much are your monthly phone, internet and utility bills? What are you spending on cleaning, maintenance and health products?

Once you have your necessities down, then you can determine how it compares to your savings goals and where you can cut down. Remember that even with your necessities, sometimes you might find room for cost cutting? I recently changed internet providers because I noticed that people are getting much better prices for their service elsewhere.

Don't be afraid to challenge yourself to beat your savings targets by cutting out unnecessary miscellaneous expenses.

5. Reflect On The Past

Finally, look at what changed over the past year, such as our spending habits. If you are working from home, you might have realized you have been saving quite a bit on certain things you would be buying when going into the office. Reflect on the challenging times. I want everyone to notice that, we take a lot of things for granted, and your spending habits changed over the last year had a year:

• Rather than going to bar every Friday after work, you have been purchase drinks at the store to bring home
• Instead of going out to wine and dine at a restaurant twice a week you have been cooking at home
• Instead of buying two Starbucks coffee's every day, now you brew your own coffee

Take time to reflect on the things you realized that are not staples in your life, and realize that you managed to go a whole year without them. When we get back to business as usual again, don't immediately jump back in full swing.

• If you went out to wine and dine twice a week before, reduce that to once a week instead
• Continue with making your own lunch and dinner with those new cooking skills you developed
• Host some at home events with friends and family instead of going to the bar every week

You already managed to go a whole year without so many things, and look at how much you saved because of it! Keep it up, because there is a lot more bulk that we don't necessarily need than we sometimes might realize.