Are You Budgeting By the 5-Percent Rule?

Coupons, sales, bulk purchasing, turning out lights, carpooling – all are excellent ways to reduce your spending. From insurance to fuel to food, you have scoured your budget to pinch every penny possible. Maybe. Budgets intend to prevent overspending, but have you actually succeeded in cutting your expenses? Once you have solidified and confirmed your budget, ease into the 5-Percent Rule to really kick-start your savings plan.

Set Expenses

You know that your rent or your mortgage payment is predetermined at least for a known period of time. If you have a variable rate or are nearing expiration of your lease, you know that your lodging expense may change and probably not for the good. You know the current amount, though, and you are maintaining that payment.

You know how much your car payment or auto lease payment is each month. Hopefully, your car insurance payment is a set amount as well. Although your car payment may not increase, you know that your insurance rate probably will even if you have no accidents or incidents from inflationary influence.

If you have incorporated a budget plan from your utility company, you know that your utility payment, often electric, is of a known amount until the semi-annual adjustment. This would also be considered a set expense, bringing the total to three. If you aren’t on a budget plan, consider the possibility strongly. Know, however, that if you underpay for six months, your plan adjustment will cause an often significant increase for the following six months. Budget plans are no excuse for overindulging where your utility bills are concerned. Strive instead to use even less than you did before. When your rates are adjusted, you want a downward slope in your expenses.

Recurring Expenses

The three items, above, are naturally inclusive here, but separately, this category is for non-regulated utility bills, food bills, gasoline costs and the like. If you take your laundry to a public laundry mat, you should have a good idea of those costs per week or month as well. Include that here.

Include ISP charges, mobile phone charges and other known periodical payment regardless of the payment’s periodicity. Quarterly payments should be noted in thirds on a monthly budget and so on.

Entertainment Expenses

While everyone should allow for a bit of entertainment in one’s life, this is often one of the areas that have the most leeway in it: Cable or satellite costs, movie tickets, concert tickets and the like – and associated food and drink costs – aren’t survival expenses, regardless of how attached to them we might be.

Leave some “play” money there, but keep funds dedicated for this category at a bare minimum.

Miscellaneous Expenses

Often called “impulse buying,” most of our miscellaneous expenses are spur-of-the-moment buys and usually can be allotted lesser funds. Keep some on hand for the package of light bulbs or the ruined pair of the only dress shoes we own, but watch every penny on extraneous purchases.

Apply the 5-Percent Rule

Save the set expenses and the recurring expenses for later review. At this first stage, concentrate on flexible bills.

Per type like groceries, average your actual expense history for at least three months. Then simply cut all flexible averages by 5 percent. The new figure is your maximum spending allowance.

You might treat yourself occasionally with that designer coffee, but buy a good thermos and take your coffee from home with you. Per cup, you will save hundreds of pounds per year. Do the same with bottled water: If filtered water from your faucet is unpalatable, try a few drops of lemon juice per self-bottled water. If that’s still not acceptable, they buy in bulk – and that’s not by the case. Buy by the gallon and recycle those fancy, designer water bottles into refilled water bottles.

Once you pare down your flexible amounts, look at the interest rates you are paying on your mortgage, loans, insurance and credit cards. Find refinancing or combined lines of credit that bring a lower interest total. Try hard to meet or exceed that 5-percent, overall reduction.

Then stash your truly saved money in the bank or an investment fund that earns you even more money!

Written by Jaye Ryan, a freelance author who enjoys writing about budgeting and savings tips for Octopus Loans.

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