I have been blogging about saving money for almost two years, but now that I am self-employed (read: earning almost nothing), my attitude towards cutting expenses has taken a very real turn. My advice had better work, or else!
I re-did our monthly budget to see how everything would work relying solely on Hubby’s salary. But instead of tracking down every single penny, I stripped down our expenses and savings to the bare minimum. What is left is our discretionary income.
Here is what my monthly formula looks like:
Income minus savings minus necessities minus irregular expenses = discretionary spending.
Necessities: rent, gas, electricity, Internet service, cell phone service, gasoline (Hubby and I each get one full tank a month seeing how I work from home and he commutes on his bike), doctor visits, medicine, gifts and my newspaper subscription to the Sunday NY Times (which is on the chopping block)
Irregular expenses: car insurance, car registration, car repairs, dental visits, Christmas presents, magazine subscriptions, charitable donations……vacations, yoga classes, and oil changes. I totaled what we spent on these categories last year and divided by 12. I automatically deduct this amount from our checking account into a special ING savings account each month.
Discretionary spending: food, clothing, bus fare, entertainment, vitamins, toiletries, meals out, hair cuts, travel, and home maintenance. To see why I put food on the discretionary list, go here.
The good news is that when I did our budget this way we have $1,593 dollars left for discretionary spending. The bad news is that our monthly savings is only enough to max out our IRAs (the 2009 limit is $5,000 per person). Though Hubby also contributes to his 401 (k) at work.
During our first month living on one salary, I would rather reduce our savings than bounce a check. If we can make it through the month on this significantly reduced spending plan, we will increase our savings.
To help Hubby and I not over spend, I divided our discretionary dollars by two (what each of us is allowed to spend per month) and wrote the number on the top of two index cards, above. Each time one of us spends, we will subtract the expense from the total. This way it will be easy to keep track of how much we have left. I hope we can make it through the month!