If your income doesn't cover your expenses, you must either cut your expenses or increase your income. It's usually easier to cut spending than to increase income. You don't need to make drastic changes, but you must make some effective cuts that will allow you to pay your bills.
First, cover the bills you must pay (mortgage, utilities, loan payments) and money for necessities (food, clothing, insurance). Then, focus on non-essentials - areas where it will be relatively painless to cut back.
Easy ways to cut expenses
The following are some simple ways to cut expenses. They also work if your bottom line is positive.
- If you visit restaurants and order take-out often, consider "brown bagging" lunch and saving restaurants for special occasions.
- You can reduce a "fixed" expense such as your electric bill by conserving energy. Make sure all lights are turned off when you leave a room. Switch to small screw-in fluorescent bulbs can also save you money. Their initial cost is higher than regular bulbs, but they last at least five times as long and use only about 40% as much electricity. Each bulb can save you $50 or more over the course of its life. If you add up how many bulbs you have in your home, the savings becomes significant.
- A bagel and coffee on the way to work every morning can cost as much as $4 per day. That's more than $1,000 per year. If you're married and your spouse has the same habit, it's more than $2,000 per year. Have breakfast at home.
- If you smoke, think about giving up smoking. Besides the health benefits, you could save over $1,200 per year by quitting a pack-a-day habit.
Getting out of debt is tough. It also takes time. Most people need a year or two to escape from debt, but you can do it if you stick with it. Remember, the discipline and techniques you learn by solving your problems will benefit you for the rest of your life. Getting out of debt feels great. Staying out feels even better.