IT ISN’T EASY sticking to a budget. I get it. Surprise expenses pop up all the time. How can you possibly be expected to live on a strict dollar amount each and every month?
The answer is, you don’t. But the key is to make sure you have enough financial breathing room, so you aren’t living paycheck to paycheck. That brings me to three common budget busters. These areas of your financial life, if ignored, can do real damage to your budget—but, with just a little focus, can make all the difference.
1. Monthly millstones. You likely have regular expenses that can be reduced significantly, without harming your quality of life. These include your cell phone, internet, cable, music subscriptions, clothing subscriptions and more.
The first step in reducing these expenses is simply to call your service provider and ask for a discount. Explain that you’ve been a good customer for the past few years and would like to find a way to reduce your bill. I wouldn’t be surprised if you could trim these bills by hundreds, if not thousands, of dollars.
Next, review whether these service providers offer the best price for what you need. I switched from one cell phone company to another and saved $50 per month. I kept the same phone. All I needed to do was swap out the SIM card in the phone. This move alone has saved me $1,800 to date.
Are there monthly subscriptions you no longer use? That’s an easy win: Cancel them. To make sure you haven’t missed anything, review all of the recurring charges on your bank and credit card statements.
2. Mortgaging your future. One of life’s biggest purchases—and biggest potential budget busters—is a house. Want to turn this into a positive? Purchase a place that’s well within your means. By keeping your total housing costs low, you free yourself up to either save money or spend on other areas of your life that likely mean so much more.
With that in mind, make sure your total housing costs don’t consume more than 25% of your income. Before buying, you need to be committed to living in your new house for at least five years. Why? When it comes time to sell, you might face closing costs that devour 10% to 15% of your home’s value.
3. Road to ruin. Another common budget buster: the expensive car. Auto makers have done a great job of convincing consumers that financing a vehicle is perfectly normal. Unfortunately, once you’re in the auto loan cycle, it’s hard to escape.
Auto loans are now stretching out to 84 months. By the time the loan is paid off, you may feel it’s time to buy another vehicle—which means taking out another loan. What to do? You might sell your current car and buy a cheaper alternative. This will allow you to pay off your current loan sooner. Even if you need a new loan to purchase the cheaper vehicle, your monthly payments will be lower—and you can use the money saved to amass money for a future debt-free vehicle purchase.
Ross Menke is a certified financial planner and the founder of Lyndale Financial, a fee-only financial planning firm in Nashville, Tennessee. He strives to provide clear and concise advice, so his clients can achieve their life goals. Ross’s previous blogs include Too Familiar, Hole-in-One and Seeking Certainty. Follow Ross on Twitter @RossVMenke.