Where to Cut Expenses

Home Money Budgets & Budgeting Tips Where to Cut Expenses

Mary and John were working with their budget. When they first calculated the income and expenses they were unhappy to find that there was $3,000 less 'income' than 'outgo'. After they decided that there wasn't any practical way to increase their income, Mary had begun to look at their expenses to see where they could save a few dollars.

Her plan was a simple one. She felt that if she compared the Smith family expenses to the average family expenses she would get some clues to where potential savings existed. She would compare the percentage spent by the Smith family to the 'average' family. If the percentage was higher in her family Mary would begin to examine the category. In some cases she knew that her family wasn't average. If that explained the difference she would move on to the next category.

But if there were no acceptable reason for the difference she would go back to see where the money was going and if there was a possibility for savings. She could even estimate how much savings might be had. Using the percent of expenses for each category she could calculate how much they would save if they could just get their own expenses down to the 'average' percent.

Of course this wouldn't automatically turn into savings. Mary and John would still have to examine the area to see how they actually spent their money. But instead of trying to decide where to start they would have the advantage of looking at an area where potential existed.

Mary showed John the worksheet she had prepared. She had taken the budgeted amounts for each category and placed them in a column. Next to each she had calculated the percent of the total expenses. She accomplished this by dividing each amount by the total they expected to spend for everything for the year. A third column listed the percentage that the so-called average family spent on that category.

John and Mary looked at the worksheet for areas where the Smith family percentage was higher than the average. Some of those areas looked promising while others did not. The first thing that caught John's eye was the auto insurance. The 'average' was less than 2%. The Smith's was closer to 4%. John quickly realized that there wasn't much hope of reducing that category unless he was willing to tell their 16 year old son to quit driving!

"What about this? We're way over average on what we spend for food away from home. Why's that?" Even as he asked the question, John's mind was beginning to formulate the answer that Mary gave him. "Since the kids got out of grade school they started buying their lunches instead of bringing them to school. You and I haven't brought lunches to work for a long time either. I'll bet we end up spending about $3.50 for each one of us to have lunch every day. For all four of us that's $14 every day."

"Oh come on, it can't be that much. Most days I just have a burger. I really only go out for lunch once or twice a week." They worked through the math and quickly realized that Mary's estimate wasn't all that far off. If they started packing lunches and reduced the cost to an average of $1.50 each they could save $8 each day or $40 a week.

While that wasn't enough to solve the problem, it was heartening to know that there was hope for balancing their budget. They continued on with their search for savings. In some areas they were already spending less than average so they didn't even think to look for savings. In other areas they noticed that their spending was higher. But when they gave it some thought, it was easy to see why they needed to spend more than the average. They were happy not to waste time in these areas.

Some areas left them with more questions than answers. Try as he might, John couldn't think why they would be spending so much on gas & oil for their cars. He resolved to check on a few things and see if there were some savings to be had in maintenance or changed driving habits. John noted that if they could just get their spending down to the average they would save about $400 a year. He arrived at that number by multiplying the average percentage by the Smith's total expenses. That total was subtracted from what they had budgeted to estimate the savings.

By the time John and Mary had looked at all the categories they had identified potential savings that would bring their budget into balance with some room to spare. Along with food away from home and gas & oil, they felt that there could be some unnecessary spending in clothing and utilities.

They still didn't know exactly how to achieve those savings but they had found specific areas that they could search. Before they had begun, John thought that they might have to look at every expense to see if it was truly necessary. His mind had a picture of evenings spent poring over a check register with a scowl on his face. Not a pretty picture.

This wasn't really too bad. They had quickly reduced the search to four areas. In one of those areas, food away from home, they already had a plan to cut spending. The others would require more study, but it wasn't as if they were looking for a needle in a haystack.

Mary and John both looked up from the numbers at almost the same time. Smiles gradually broke out as they realized that balancing their budget was possible. They knew that they were fortunate that the gap was a small one. Mary's brother, George, had just lost his job. His family was trying to find a way to make a go of it with nearly income reduced by half. But that's a story for another day...when George comes to visit the Smiths.

Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. You can also follow Gary on Twitter or on his blog.

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