Monday, March 27, 2006

Pruning your budget

I'm sure you've heard the saying "It takes money to make money" hundreds of times. Well, just because you make a lot of money doesn't mean that you have a lot of money. The only money you have is what you don't spend (and the government doesn't take).

I make decent money, but the struggle for us has always been having enough money at the end of the month to save, invest or pay down debt. At times, it seems like the only money being saved is what comes directly out of my paycheck (you gotta take that employer match).

Anyway, I've been listening to Dave Ramsey a lot lately and what I've heard there was reinforced by what I learned from The Millionaire Mind. They have influenced me to start going through my family's budget to see where we can save some money. We started with the budgeting forms on Ramsey's website and got on a written budget that we're following.

Once we wrote down our current budget, we realized why we weren't saving very much money: there wasn't much money left over at the end of the month. So we started going through the budget line by line to see where we could cut.

The first line to meet our scrutiny was an expensive gym where I was a member. It was good and worth the money, but expensive, so I quit it and started looking at other options. I was honest with them, told them I liked their facility and hoped to be back in the future, but could not afford it at this time. You know what they did? They took pity on me and gave me a punch card (in return for filling out an exit survey) that gave me five free visits. Honesty is often the best policy.

First of all, if you're considering a change in your gym, you might be rewarded for doing a little research. For instance, I checked with my health insurance provider and they have a 10% discount at a different gym. With that discount, joining their gym would save me about $25 per month or $300 per year.

I also called the local YMCA, where I was a member for years. Membership at the Y was a little more expensive than the other gym, but they have a discount if you're willing to volunteer your time as a basketball referee or coach.

There may be other opportunities for you or in your town. In college, I had a friend who took a part time job at a gym so he could get a free membership. The point is that you might benefit from taking a creative approach to saving money on this line item in your budget. I ultimately decided to not join any gym over the summer and have started running, biking and doing sit-ups and push-ups. It's saving us $69.50 per month which is $834 on an annual basis. If that money is used to pay down debt (which it will), it actually saves us $892.38 annually because we won't have to pay interest on the debt we retire. That's real money.

The next line item we looked at was the cleaning lady. We have young children that my wife stays home to care for, so we have a cleaning lady to make our lives a little more sane. I'd rather have my wife spend time with our kids than on her hands and knees cleaning a toilet. Funny thing, she agrees with me. However, we decided to cut back the amount of time that she cleans. We will end up saving $12.72 per month, or $152.64 per year, $163.32 counting interest that won't be paid on retired debt. We will keep the cleaning lady until the kids get old enough to help out around the house more.

So, after looking at just two line items in our budget, we have saved $1,055.70 on an annual basis. There are dozens of items left to go and I can't wait to attack them. Stay tuned for more budget pruning in the near future and leave any tips in the comments section that you have from your own experience.