SCORE Small Business Blog

Finance: Decrease Spending
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In the current economic climate, what’s the most important thing that people can do to decrease their spending and stay on track with their finances?

iStock_000006413338XSmallOne of the most helpful actions you can take to decrease your spending is to track it for at least a month. For one solid month, write down every purchase you make—down to the cent. When I say every purchase, I mean every purchase. You’ll need to track every night out, every coffee, every taxicab ride, etc. Once you’ve tracked your spending for a month you’ll really be able to see where your money is going, and where you can cut back.

Going hand in hand with tracking your spending is creating a budget. By creating a budget you’re helping to ensure that you won’t fall victim to overspending. To create a budget, you’re going to need two numbers: First you need to know how much you’re bringing in monthly. This should include your take-home pay and any other source of income you may have. Do you have an income that fluctuates from month to month? If so, find an average for the last year. Second, you’ll need the amount you came up with when you tracked your spending for a month.

Once you have these two numbers, you’re ready to budget. Here’s what the breakdown of your spending should look like:

  • Housing: 35%
    Housing includes your mortgage, rent, maintenance, taxes, utilities and insurance.
  • Debt: 15%
    Debt is anything you have to pay back: credit cards, personal loans, student loans, etc.
  • Transportation: 15%
    Transportation includes gas, car insurance, car repairs, car payments, parking expenses, tolls and train or bus tickets.
  • Savings: 10%
    This is the money you’re setting aside for retirement, college, emergencies or other goals
  • Other living expenses: 25%
    These are everything else, groceries, healthcare, nights out, vacations, clothing, entertainment, gifts, etc.

Are some of your expenses costing you more than the appropriate percentage? If so, you’re going to need to do some tweaking. While many expenses are fixed (your mortgage, your car payment etc.) you can likely cut back on expenses that fall under the “other living expenses” category. Take a look back through your notes from the month when you tracked your spending to come up with a budget that keeps you financially stable.

Jean Chatzky, SCORE Guest Blogger
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