As someone with a bunch of regular expenses, I know that they add up. I also know that you’d have to pry my laptop from my cold, dead fingers before I’d voluntarily give up the internet. In my husband’s case, cable is a necessity. How do you choose between one recurring expense and another? Prioritize.
Each one of us has an amount we earn and an amount we spend. As I’ve stated in my Steps To Financial Stability, you want the amount coming in to be much larger than the amount going out. That only happens if you carefully choose to spend your money on what’s important to you. You don’t have to give up your daily $4 coffee or your lawn service, but you do need to make sure it’s more important to you than other things you could be spending on instead.
To get started, my husband and I took a look at our income and figured out how much we actually needed to live on. This means, take a look at how much do you actually need in order to survive – housing, food, utilities, etc. Then we chose how much we wanted to save – up to matching on my 401k, at least one Roth IRA, $2500 a year to Scottrade, etc (you can see our current budget here).
After making those two decisions, we knew how much was left for the extras. Choosing was just a matter of asking ourselves what we wanted the most. Pets, cable, internet, and a housekeeper were the first things on our list. Those four things added up to $300, which was $50 more than what we had leftover at the time. We had to hold off on hiring a maid until one of us got a raise – specifically, my husband and I received a cost of living adjustment a few months later. Jacqui, our housekeeper, was hired less than a month after that.
We’ve added a few other things over time, but we’ve also increased our income and savings. The key is making sure that you balance your savings and expenses. If you prioritize, you’ll know what’s important to you. That makes skipping a splurge item much easier since you’ll have something even better on your mind.
Case in point, I still buy a package of Oreos from time to time, but it’s been much easier passing them up on a regular basis since I know I like annual vacations even more.
How about you? What are you willing to put into your long-term budget?
This is a guest post from Crystal of Budgeting in the Fun Stuff: A Personal Financial Blog about the Next Financial Step. It’s an open fiscal diary and a personal finance blog rolled into one that is looking to get as many people involved as possible.