How to Lower Fixed Expenses on Your Budget When You’re Paying Off Debt
Setting a budget and trimming down monthly expenses are key priorities for anyone working on paying off debt. While there’s so much emphasis out there on cutting back your discretionary spending to free up cash to apply to debt repayments, how often are you looking at making changes to your fixed expenses too?
For some people, finding the sweet spot with a balanced budget is hard work. Instead of re-evaluating what’s in their fixed spending, they keep siphoning off funds from savings and their discretionary categories until their budget simply isn’t realistic anymore.
What Makes Up a Budget?
Your budget is made up of three main components: your income, your fixed expenses, and your discretionary spending. Your fixed expenses include your routine monthly costs, such as your mortgage or rent, bills, transportation, and groceries. Don’t forget about your savings and debt repayments – these should be part of your routine budget, too. Then you have your discretionary spending, earmarked for categories like entertainment, shopping, and eating out. Ultimately, both sides of your expenses should not exceed your monthly income.
How Much Money Should You Spend on Living Expenses?
As it turns out, your fixed expenses aren’t necessarily needs, and they aren’t locked in either. There is plenty of wiggle room in the fixed expenses component of your budget, and with some adjustments you could make cuts to balance your budget or to allocate more of your income to paying off your debts. Here’s how.
To help you get the most out of this information, we’ve broken it down into these helpful sections:
Conduct a Full-Scale Audit of Your Recurring Monthly Bills
Many consumers ignore their regular monthly bills as a source of their debt problems. They think it’s too much shopping or too many nights out that get them into trouble. And while it could be that type of spending that blows your budget, the so-called necessities like your premium cable TV package or your unlimited service cell phone plan also take away big chunks of your income.
These days, it isn’t uncommon for a Canadian household to pay for a monthly cable TV package, Netflix, Amazon Prime, and Disney Plus or another streaming service subscription. This could easily tally up to about $150 in monthly expenses for TV options alone. If you’re adding premium channels for sports or specialty programs, that’s another $20.
Don’t forget that you’re also paying for your home’s WiFi connection and your smartphone’s data and phone package. Add these costs together and you could be paying upwards of $400 per month.
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What Your Audit Could Reveal
Your audit could shed light on some fixed expenses you don’t actually need. Are you paying $60 for a monthly gym membership you barely use or an online newspaper subscription you rarely log into?
When you’re paying off debts, some tough decisions and compromises need to be made. As a household, you can decide on what to keep and what needs to go so you can reprioritize these funds towards an extra debt repayment instead.
Do you really need a full cable package and two or three streaming services? Would you notice if you swapped your ultra-fast fibre Internet for regular broadband? If you’re not sure, scale back for a month or two and test it. And do you need an unlimited data package on your smartphone if you already have wifi at home, school, and work?
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Sitting down, crunching the numbers on these fixed expenses, and making conscious decisions on what you pay for could save you hundreds of dollars in fixed costs each month. Some households forgo cable altogether and stick to a single streaming service for at-home entertainment.
Watch Where You Eat and What You Spend at the Grocery Store
Feeding your family is hands down one of the biggest drains on your monthly budget, but there are ways to keep these fixed costs down. Take stock of how much you’re spending on groceries, eating out and coffees, lunches and snacks during the work week. Are there obvious swaps you can make to put a dent in this category of your spending?
It’s often the seemingly innocent things in groceries and eating out that take away from your budget and cause you to overspend. Keeping receipts from an entire week or month of any food-related expenses can be an incredibly eye-opening experience – you’ll see just how much you tap, swipe and spend on groceries, meals, drinks and snacks on the go.
When you’re working with a budget and you’re focusing on debt repayment, you should get into the habit of scouring flyers for sales on your go-to kitchen staples and other ingredients. Then you need to meal plan, strategizing your week’s meals around what’s on offer. If it’s chicken, fresh produce and canned soups that are on sale for the week, think of making fresh chicken Caesar salads with soups for lunch, or family-style pasta dishes and one-pan baked vegetables and chicken meals for dinner. Use coupons to deepen your savings too.
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Meal Planning is the Key to Reducing Your Food Budget
Meal planning is a crucial way to save money because you’re only buying what you need and you’re filling your fridge with tasty meals so you’re less tempted to order in or eat out. Make sure you follow portion control too – if you’re making batches of meals for the week, keep them in separate meal-sized containers.
Challenge yourself to cooking at home during the work week or even preparing all three meals per day with what’s in your fridge. Home-cooked meals are usually a fraction of the cost of going to a restaurant or ordering take-out, so you’ll see drastic results if you typically shell out for the latter.
As you get into the habit of cooking at home, meal-planning, and creating meals based on seasonal offerings, you’re bound to see big savings in this essential part of your fixed expenses.
Reconsider Your Transportation Choices
For some Canadians, owning a car is necessary; you might need to get to work in a town with few public transportation links or shuttle children from day care to home or extra-curricular activities. For others, owning a car – or a second car in some households – is an expensive luxury.
Be honest and consider if you need your car or if you’re keeping up with this expense for convenience. It’s a costly convenience if so, as you’re dealing with car payments, gas, insurance, parking, and maintenance and repairs. Could you take public transportation or carpool and trade in these costs for a monthly bus pass instead?
Sometimes, it’s even worthwhile to keep your primary or secondary car in the garage and off the road for a few months. This temporarily removes your car expenses from your budget, putting hundreds of dollars back into your wallet.
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Renegotiate Your Fixed Accounts for Utilities and More
After you’ve conducted an audit on your fixed expenses and decided on what to keep, do your homework to make the most of these services and their prices. Whether it’s home insurance, cable TV, or a smartphone plan, you’re a valued customer in a competitive market.
Focus on one account at a time. For example, write down how much you pay for your current home and auto insurance plans and compare them to current promotions. If you notice a deal for identical coverage, call your current provider to ask if they have any deals or if they can match their competitor’s offer. Do this again with the other fixed accounts you’ve maintained. You could end up with significant savings each month by simply doing your homework and putting in the ask. Look into bundling services too. If you’re buying cable TV, internet, and a phone plan from separate providers, you could save more by buying the trio of services from the same company.
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Be Strategic With Your Debt Repayment
Debt repayment is a pivotal component of your budget if you intend on being debt-free in the coming months or years. The only way you’ll pay off your debts and get out of the red is by stashing away your credit cards and committing to tackling your outstanding balances each month.
You don’t want to lower how much of your income you’re funnelling over to debt repayment each month, but you do want this money to get to work for you. First, figure out your debt repayment strategy; examples are the snowball method (tackling accounts with the smallest balances first), the avalanche method (tackling accounts with the highest interest rates first), debt consolidation, and a debt management program.
When you know which strategy you’re deploying, you’ll know how to divvy up your monthly funds for debt repayment. Another key step is to call your creditors to ask for a lower interest rate or a grace period of a few months as you get your finances back in shape.
Rehearse a script in which you explain your current circumstances – perhaps you got into debt because of a job loss, the coronavirus, or a medical emergency – and let your creditor know that you’re now committing to paying off your debts. If you’re a longstanding customer in good standing with making payments, they could offer to cut your interest rate or offer you a six-month interest-free grace period. Suddenly, the full amount of your debt repayment is being applied to your principle debt and isn’t being eaten up by interest.
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Budget Friendly and Environmentally Conscious Choices
Any Canadian who pays the bills for running a household knows first-hand the sticker shock that comes with heating a home during frigid winters and cooling it in scorching summers. Our extreme temperatures can take a toll on our utility bills.
Do what you can to mitigate this – it’s as simple as keeping your room temperature at a comfortable level. While you need to warm your home during cold winter nights, you don’t need to be in balmy temperatures indoors and can opt for a moderate temperature paired with a cozy hoodie, socks, and warm blanket. The same goes for hot summers – supplement your air conditioning with a fan or light layers instead of blasting the house with cold air. You could even get a programmable thermostat.
When it comes to energy consumption, lower the temperature on your water heater, unplug unused electronics, and invest in eco-friendly light bulbs. Encourage your family to cut back on energy consumption to make a dent in your bills, and to be good to the environment. If you’re at home in the daytime, opt for opening the curtains and blinds to make use of natural light instead of turning the lights on around the home. Whenever you leave a room, make sure the lights are turned off – the same goes for when you’re not home.
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If you have someone handy in the household, have them look for air leaks around the home, from the windows to door frames and in the basement and attic. Sealing these air leaks will help to make sure your heating and cooling isn’t seeping out of the home and getting wasted. You might feel an immediate difference from just making this single adjustment.
All of these conscious changes to your home will translate into lower utility bills.
We’re Here to Help You Budget and Deal with Debt
If budgeting, figuring out which expenses to cut, and considering your options to deal with debt seem overwhelming, we’re here to help. One of our Credit Counsellors would be happy to look at things with you, answer your questions, and help you determine which strategies will get you the results you want. No judgement and no strings attached. Reach out to us – by phone, email, or anonymous online chat – whenever you need some help.