Finance: Decrease Spending

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?

One 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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Leave a Comment January 29, 2010

Manage: Freelancer’s Guide to Budgeting

How should I budget if I have a freelance business? Where should I keep my earnings?

When you freelance, the amount you make from month to month fluctuates, making budgeting a bit of a challenge.

The first thing you’ll want to do is map out your monthly expenses.  For one month, write down everything you spend.  And I mean everything, not just your necessities.  The coffees, the nights out, the pack of gum; they all get factored in.  Next, take the total you get at the end of the month and overshoot it by just a bit. It’s better to over-estimate than to have to scramble to pay the bills at the month’s end.  The number you get will be your monthly budget.

Next, add up what you’ve made from freelancing from the past year.  Divide that number by 12.  This will give you your average income per month.  Use this number to create the monthly budget. Take this number and subtract the monthly expenses you totaled up earlier.  If it seems like you’re cutting it close, take a second look at your budget and see where you might be able to cut back (you know the coffees, nights out and packs of gum I mentioned…those things can go).  If you’re lucky enough to have money leftover, use it to start paying down your debts.  If you’re debt free, put those extra funds into savings.

Now, let’s move on to where you should stash your cash.  For freelancers, I think it works best if you deposit your checks into a savings account, and then pay yourself each month.  Set it up with your bank in such a way that you have a certain amount moved from your savings to your checking on a monthly basis.  And don’t forget about that emergency fund—if possible you’ll want to have six months of living expenses set aside just in case.

Jean Chatzky, SCORE Guest Blogger
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2 Comments January 8, 2010

Finance: The 3 C's of Cash

As an entrepreneur, your cash flow and cash position are paramount.

Collect Cash

Deposits. If you bill for services, collect a deposit of 33 percent to 50 percent up front. Who does this? Landscapers, interior decorators and consultants. Call it a deposit or call it a retainer, but collect it.

Payments. Send out invoices promptly mark “pay upon receipt” or “net 15.” As an entrepreneur, you want to get the payment, which you are owed, quickly. With these terms you can begin collections follow-up in 15-30 days, instead of 30-60 days.

Conserve Cash

Watch Your Budget.Watch the dollars. Watch the $50s. Watch the $100s. The extra purchase of office supplies, the added of another mobile phone in your network, the money you spent that was not on a budgeted item, blows the budget. The gasoline that gets used because of three separate trips in three days instead of one roundtrip to three stops–that’s where the money goes–overhead costs.

Stick to your budget. If you start drifting over budget, then look for somewhere else to cut next month. It’s discipline and looking at the numbers that keep you on track with expenses.

Carry Cash

Carry cash on your budget. Yes, you can have a line item in your budget that’s operating cash reserve. This means you have planned cash to be in the bank, so if your cashflow is slow on collecting payment, you go over budget, or if sales dip–you still have operating cash to keep the business moving forward.

Set a cash floor for your peace of mind. Know your total revenue, total expense and your upcoming sales goals. You have a good sense of your monthly expenses. Before you ever draw on a line of credit, set a floor for how much ready cash you keep on hand to meet expenses.

-Christine Banning, SCORE
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5 Comments October 1, 2008