The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

For the last several days, we’ve been focused primarily on digging through our monthly expenses and looking for places to trim away some fat. It will take some time for this to become clear, so today we’re going to look at how you can refine your life budget each month as the expenses begin to move downwards – and the available cash goes upwards.

First of all, at the start of each month, you should refine your “life budget” a bit. What this means is that you should take out the budget you prepared the previous month and use that as a starting point to develop the next month’s budget. Since we’re nearing the end of the first month, I’ll walk you through this process once so you can get a feel for what should be done.

At the start of the month, take out your budget from last month and all of the statements you got in the intervening month. You’ll also need a clean piece of paper for the budget for the upcoming month.

The first thing to deal with for the coming month is your overall income. If your income this month is the same as last month, just carry the amount over to the new budget. If you got a raise that will start taking effect in the coming month, enter that amount on the new budget instead.

Next, deal with the expenses. Copy each expense (but not each expense amount) over to the new budget. Then, copy over each expense that you didn’t get a statement for in the past month. These expenses will remain unchanged.

Now let’s deal with the expenses with new statements. Rather than confusing you too much, I’ll give you an example of what to do to start with. Let’s say your past budget had an electricity bill for $100, but in the intervening month, you installed CFLs and did a few other things, and the new bill is only $80. Rather than celebrating and immediately writing the lower amount into the new budget, hedge your bets a little. Take the amount from the old budget and multiply that by 4, then to that add the amount of the new bill. Divide that number by 5. That’s the number you should write in for your energy budget for the coming month.

This trick is called weighted averaging, and it protects you from making significant changes based on one data point that may or may not be unusual. Over time, your energy budget will go down. For example, let’s say that for the next six months, your energy bill stays at $80, and then summer kicks in and your bill goes back to $100. If you use weighted averaging, the bounce back won’t hurt you at all, because you’ll have a bit of a surplus from months of slightly overbudgeting and it’ll be no problem at all to pay the bill. However, if it bounces back suddenly, your budget will be damaged by this sudden change.

If you’ve been diligent about doing trimming, you’ll probably notice that after a few months, your numbers for expenses are either staying the same or trending downwards. Even better, you’ll probably be seeing some surpluses at the end of the month beyond your budget. That’s great; just move those surpluses into a savings account so they can earn some interest, and then move them back out if you need them. Even better: your budgeted total for expenses for the month is also lower than it was before. What does that mean? More money to eliminate debts and dreams!

Now that you’ve seen a little drop in budgeted expenses over the previous month, you can allot that money towards the debts and the future plans on your budget. My advice is to channel them into more extra debt payments, but you might also want to bolster a long-term plan as well. At the very least, take half of that extra money and add it into paying off debts, because the freedom of being debt free is incredible.

So just copy over the debts and plans from the previous month, except add in the reduction in other expenses to the debt you’re focused on or perhaps also put part of it into one of the dreams. And you’re done for another month.

I like to keep my current budget posted in a place where I see it regularly, along with another big reminder: I use Excel to create a chart showing my expenses and debts going down each month. Seeing both of those lines heading south is a big reminder that I’m living a financially healthy lifestyle.

Tomorrow, we’ll look at some ways of managing your financial records.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Today is the final day of expense evaluation before we begin to tie things up (the month is nearing an end, after all), so today we’ll tackle what is perhaps the biggest financial rough patch in the United States: credit cards. As anyone who has ever faced a big pile of credit card debt can tell you, credit cards are nefarious little devils that can sneak up on you and destroy all of your financial planning if you’re not careful. Thus, here are some tips for managing that month-to-month credit card debt; spend some time today implementing them to reduce your monthly credit card spending.

Look into moving your balance to another card. If your credit is strong, you can easily obtain a 0% APR on balance transfers for as long as 18 months. Doing this can transform high interest debt into no interest debt, meaning that each payment will go straight towards eliminating the balance. Be sure, though, that you have eliminated a lot of the balance during this period, because it will be painful when the interest payments come back.

Ask for a rate reduction. Another potential avenue for reducing the monthly interest on a card is to call the number on the back of the card, get to a live operator, and ask to speak to a supervisor. At that point, tell them you’re tempted to take a balance transfer offer in order to consolidate your debt and request that they reduce your interest rate. Quite often, they’ll be happy to oblige because earning less interest on a credit card is better than earning nothing at all.

Look for lower interest methods to consolidate your credit card debt. You may have available to you a home equity line of credit that is at a much lower interest rate than your credit cards, so it might be worthwhile to pay off the cards with the HELOC. Another possibility is discussing a personal loan with your local bank; you might be able to consolidate a lot of the debt into a relatively low interest loan. However, these tactics don’t mean you have a clean bill to spend again! Put the credit cards up for a while and learn how to live on the money you have.

Stop using credit cards for day to day expenses until you can eliminate the debt. Until I got my credit cards under control, I moved to using checks and cash wherever possible, supplemented by a debit card. I treated the credit card bills as a loan that needed to be paid off, not as a tool to buy more stuff I couldn’t afford. I didn’t cut them up, though; I just put them in a place that was hard to access. Why? Canceling a bunch of credit cards all at once can be severely detrimental to your credit health.

Tomorrow, we’ll begin to finish out the month by re-evaluating where we’ve been and looking at ways to keep the momentum going.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

If you’ve been following along with this series and have been participating in the expense evaluations of the last week, you’re probably feeling pretty good about your financial direction. Now we come to the part that is the hardest for people to give up – and the one that makes most people relapse: entertainment and hobbies. In other words, all of the consumer joys you have in life, from television to gadgets to video games to clothes shopping.

I’m going to say something shocking here: if you really want to commit to this plan long term, you should not give up most of these things. They bring a lot of day to day joy into one’s life and the guilt that they bring is due to excess, not due to the spending itself. The key is not to trim out all the lattes you drink, but instead trim back a few lattes a month. That way, you can still get the simple pleasure of enjoying a latte, but you also get the pleasure of skipping one every once in a while with the realization that you’re skipping it for good reasons. It turns something that can be a big negative (and thus makes it very easy to quit and give up on) into something that is a net positive.

With that being said, take some time today and go through your more frivolous expenses in a given month. You can start by digging out your last month worth of credit card and checking statements and highlighting everything you bought for pure entertainment, simple pleasure, or for a hobby. This might take a little while, but it’s worth the effort.

Once you’ve highlighted all of them, go back and make some approximate groupings. For example, group all of your coffee shop visits together, or all of your book purchases together, or all of your music purchases together. Use groupings that make sense to you; if you try too hard to use what someone else thinks should be grouped together, it will have no meaning for you.

Now, go through these groupings one at a time and ask yourself whether it would detriment your life to trim back spending in this area. Let’s say you buy a grande latte each morning at the coffee shop. Maybe you could cut this back to four times a week, with two of them being regular lattes? That way, you could still enjoy your big latte on Monday morning and Friday morning and still have some on Tuesday and Wednesday, and just drive into work with a smile on Thursdays knowing you’re working for a great future. You might also pledge to go to the library and mill around every other time instead of going to the bookstore or the music shop. Remember, if cutting back at all makes you feel really unhappy, then don’t cut back.

These little changes are the ones that quietly make a big difference; if you try to make a big change, it will be no different than a New Year’s resolution where you decide to diet and spend the first week eating salads. By the end of January, you’ll be knocking back the proverbial poundcake and it will have all been for naught. The key is to find those places where you can cut off some fat without damaging the meat.

Tomorrow, we’ll look at credit cards, their fees, and what we can do to reduce them.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

The vast majority of Americans do their primary banking with one of several very large bank chains. Unfortunately, these large chains are often almost insulting in how they treat their average customers, charging numerous fees and other crazy charges that, over a year, can add up to quite a lot.

Today, we’re going to take a serious look at how your bank (or banks) treats you. Pull out a blank sheet of paper and a copy of your last bank statement. We’re going to see what the fees are costing you – and see if there’s anything you can do about it.

First, copy every single charge that’s not a purchase from your statement to your blank sheet of paper, along with the amount. Leave plenty of white space over to the far right so we can do a few simple calculations. If you earn interest on the account, include that amount as well.

When you’re done, total these charges up (don’t include any earned interest – we’ll deal with that separately) and find out what your account is really costing you a month. The first time I did this, I discovered that I was losing about $25 a month in small fees. Each fee seemed tiny, but when I spent the time to add them up, I was flabbergasted.

Want to surprise yourself even more? Multiply that total by twelve to see how much you’re being dinged for in a year. You should also figure in another 2.5% beyond that total because you could easily earn that much in savings over the course of a year. For me, I saw a total charge of over $300, meaning for the opportunity to use my money for their investments, the bank was charging me $300 in fees a year.

So what can you do? If the charges are appearing in your savings account, look at getting an ING Direct or HSBC Direct savings account. Both are basically charge-free and both earn a stellar interest rate (4.5% and 5.05% respectively). I went from earning about 0.5% on my savings account with occasional fee charges to earning 4.5% with no fee charges ever, putting a lot more money in my pocket.

If the charges are appearing in your checking account, take a look at some local credit unions. Credit unions generally have very strong checking accounts with almost nonexistent fees, though of course your mileage may vary. I found a local credit union that doesn’t charge me any fees at all while offering me all of the same services as my own bank; the only time I’m ever dinged is when I use an ATM in a strange place, and even then the fee is very small. I now probably spend $10 annually in fees versus $300.

If you’re worried about the process of switching primary checking accounts, I’ve written a guide to aid you in this process. It takes less work than you think and over time the savings can be tremendous (if you can save $300 a year like I am, it’s well worth the switch).

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Most of us have a set of monthly bills that we pay as part of our regular routine. They constantly chip away at our monthly and annual budget, eroding how much we can spend on a regular basis. Some of these are essential (electricity), while others are maybe less essential (Netflix). Today, we’re going to take all of these monthly expenses and see whether or not any of them can be reduced or eliminated.

First, make a list of every monthly bill you pay. Cell phone, cable, internet, electricity, mortgage, rent, insurance, and so on. Write the approximate amount you pay each month next to them, but leave some space over to the right for some more calculations.

Once you’ve made this list, cross off the ones that are fundamental for day to day life. Electricity is fundamental, while internet access is not. The mortgage is fundamental, while Netflix is not. Loan payments are fundamental, while cable or satellite television is not.

Now multiply each of the remaining elements by twelve so that you can see how much the bill is costing you in a year. You should also multiply that yearly amount by 1.025 (2.5% more, in other words), because that’s how much you’d have if you put that bill amount into savings each month. Multiplying out the bill amount like this can often make a reasonable bill seem crazy. For example, if you pay $19.95 a month for Netflix, that’s $245.39 a year towards your life dream that’s going away. Spend $50 a month on cable? That’s $615 towards your dream gone forever. Got a $200 country club membership fee? $2,460 a year goes poof.

At this point, go through each item and ask yourself whether it’s worth what you’re paying for it. It might be worth it to you right now, or you might realize that it’s something you rarely use so it’s not really helping you build towards your dreams. Most likely, you’ll find ways to reduce that bill without eliminating it. Maybe you can go to a cheaper plan on Netflix ($61.50 saved a year), or you could eliminate $15 worth of premium channels from your cable bill ($184.50 saved a year), or you could get a less expensive calling plan from your cell phone provider.

It’s important to remember that even though each cut seems tiny, if you’ve been following the plan this month, you’ve trimmed away a lot of fat from your budget without really affecting your way of life all that much. Depending on your choices, you may have dropped ten percent of your expenditures already; if you take that ten percent and use it to pay off debts now and later invest it in your dreams, you’ve literally taken a dream that seemed impossible and transformed it into something possible.

Tomorrow, we’ll look at some effective mechanisms for battling bank fees.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Most people, once they’re locked into a home mortgage or have moved into an apartment, feel as though that is an amount that they are simply down each month, with no real way to reduce that amount. It’s simply not true; it’s just a psychological trick within your mind. The real truth is that there are ways to effectively reduce that amount each month without adding any significant risk to your situation.

Here are five avenues to explore in terms of reducing your monthly housing bill. Spend some time considering each one and actually ask yourself whether or not these things are feasible for you.

Rent out a room. Some people feel very uncomfortable doing this, but it is definitely a great way to reduce your monthly housing costs. If you have a close friend or relative who is in need of inexpensive housing, offer to rent them a room at your home for a good rate; you could even offer to give them board as well for a higher rent rate. When I was in college, a friend of mine used to pay $500 a month to one of his parents’ friends in order to have space in their basement and free meals. We are also considering renting out a room in our own home after we make the big purchase.

Consider a home downgrade. If you’re a married couple with no children left in the nest but a lot of bills to pay, it might be worth considering buying a smaller home or an equal sized one in a less expensive area. This is especially true if you cah sell your current home and move into a smaller one that’s already paid off; it puts you in great position for the final push to retirement.

Negotiate. If you’re living in a rental situation, negotiate with your landlord. Offer to sign a longer lease in exchange for lower rent if you know you’re going to live there for a while. If you have a bit of money in the bank, you can also offer to pay several months of rent at once in exchange for a discounted rate. A close friend of mine was able to write a check for a year’s worth of rent at once and her landlord gave her a 40% reduction in the rent level, simply because there was no risk on the landlord’s part.

Practice preventive maintenance. Here’s an excellent checklist for basic home preventive maintenance. It can seem like a lot of work, but it’s a great way to save money. Set aside a few hours each month for these routine tasks and things will be much less likely to break down or cause major unexpected expenses.

Refinance. This is a carrot dropped in front of many people – and some jump for it without thinking about it. Spend some time and run the numbers to see whether a refinancing might improve your month-to-month financial situation. Don’t just jump on a refinance because it offers lower rates now, though; only get into a fixed rate refinancing.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

For many of us, food eats a much bigger portion of our monthly budget than we even realize. We grab some fast food a few times a week, grab take out a few more times a week, and dine out at expensive restaurants here and there. The thing is, though, that it is very easy to cut down on this expense. Here are a few simple strategies to employ.

Eat out less; prepare more food at home. This is the single biggest key to reducing your spending on food over any period of time. I tend to find that it’s more worthwhile to find simple replacements for fast food and to make stuff at home rather than getting take out than giving up a weekend dinner out with my wife.

If you don’t know how to cook, teach yourself, starting with simpler recipes. There are a lot of books out there that can teach you how to cook (trust me, I’ve read a lot of them). The three that stand out (for me) are How to Cook Everything (probably the best overall for learning), The New Best Recipe (probably the best recipes), and The Joy of Cooking (probably the best reference and easiest to find used). Get one of these three and make a commitment to cook. In fact, if you stick around until February, I’m going to somewhat give into my desire to have a cooking blog and do a four week crash course on learning to cook at home with an eye towards the pocketbook.

Give leftovers a try. I used to think leftovers were the epitome of nasty, but then I figured out a few key secrets about making leftovers better: keep the foods rotating and make sure to spice the leftovers themselves. If you prepare a bit extra at mealtime, leftovers make for extremely cheap dining.

Buy a deep freezer. This allows you to buy some foods in bulk at a very cheap rate. Once you have the freezer, check with a local butcher to see what kind of deal you can get on bulk meat; you’ll be amazed how much of a discount you can get on bulk orders. You can also move to a system of preparing many meals at once and freezing them for later use; it’s a lot easier after a busy day to come home and pop a meal in the oven than it is to stop at the take-out place, especially when you realize how much cheaper the first option is, too.

Organize a series of potluck dinners. If you have a group that regularly dines out together regularly, suggest that you have a rotation of potlucks or backyard barbecues instead. If everyone is on board with this, it can be vastly cheaper and often more fun. Some of my best memories of dining with friends are not from restaurants, but from sitting on back porches watching the moon rise and enjoying a bottle of wine in the gentle warmth of a summer evening.

Ready? Let’s continue on to the next day.

The Simple Dollar offers a month-long plan for fixing your finances. All you need is an open mind and an hour each day.

Almost all of us have an automobile. Many of us have two or more in our family. We all know that they’re money pits, requiring maintenance, gasoline, and repairs, but we need them to get around, so we often just feed the beasts without thinking about it.

Yet there are several simple things you can do that can reduce the monthly cost of your automobile usage. The biggest key is raising your gasoline efficiency, but other tactics work as well. Take a look:

Go easy on the brakes. Braking is incredibly inefficient. Coast to a stop when you see a red light instead of speeding up to it and then braking. Choose routes that have fewer red lights. Try to time your driving so that you hit all green lights, even if this means driving slower. You can easily increase your efficiency by 20% by doing this, which in a car that you drive 10,000 miles a year and gets 15 MPG can save up to $250 a year (depending on your normal driving conditions). Yeah, just by laying off the brakes.

Don’t speed. Keep it at 60 MPH or under, even if you feel like an old man on the interstate. Why? Every 5 MPH over 60 costs about 7% fuel efficiency. If you normally drive 75 on the interstate, trimming that back to 60 not only avoids tickets, but it also increases your fuel efficiency by about 20%.

Clean out your air filter. I do this once a month or so, but I suspect this will be the one tip that most people will avoid. It’s quite easy, though; for most cars, it’s simply removing a nut, lifting up a plate, pulling out your air filter, blowing the dust off of it and tapping it a bit to get rid of the dust, and then putting the filter, plate, and nut back into place. This increases your fuel efficiency by about 8%, which in a car that you drive 10,000 miles a year and currently gets 15 MPG can save about $110 a year.

Inflate your tires up to the manufacturer’s recommendation. If you don’t know what this is, go out and find out what tires you have, then research them on the ‘net. Airing up your tires is really simple and can be done at most gas stations for free. For every two PSI that your tires are below the maximum recommendation, you increase your fuel consumption by nearly a percentage point. Many people have tires that are 10 PSI or more below their maximum, which reduces fuel efficiency by at least a mile per gallon. How much will that save? If you drive 10,000 miles a year and your auto currently gets 15 MPG, just keeping your tires inflated will save $93.75 a year (assuming $2.25 a gallon for gas).

Keep your car clean. Excess weight reduces your fuel efficiency, so cleaning out your car (especially of anything heavy) will save money on gas.

Turn off your car during long waits. Stuck in traffic and nothing’s moving? Turn off your car. If it’s off for more than thirty seconds, you’re saving money. If it’s off for several minutes, you’re doing really well.

Keep an eye on gas station prices. Stations can vary quite a bit, even from day to day. Keep an eye open on your way to work to see which is cheapest, then hit that station on the way home. This variation is especially true if you cross state lines, as most states have a pretty strong variance in gas prices. For example, Iowa’s gas prices are much cheaper than in Illinois, so if I go to Illinois, I fill up before crossing the border. I can save $0.15 a gallon or so by doing this.

If you start adding up these numbers, you’ll realize quickly that you can save some serious cash, especially if you’re driving a fuel-inefficient vehicle. If you’re able to get your SUV from 10 MPG to 14 MPG using these tips, over a year of driving 10,000 miles and with gas averaging $2.25, you’ll save $650. That’s more than $50 a month just for keeping an eye on your car and driving a bit more cautiously.

Tomorrow, we’ll look at cutting down on food costs.

Ready? Let’s continue on to the next day.