The items that you don’t really need fall into the category of discretionary spending. Sometimes, the line separating necessary and discretionary spending can become blurred. Is going to the movies a treat or absolutely required to maintain your mental health? You confront these questions when you put together your household budget. Start with the items that you cannot live without, including those needed for you to earn your living. For instance, depending on where you live and work, you might have to own a car. Only after you budget necessary items, including any money put aside for emergencies and long-term savings goals, should you add discretionary items to your budget. The most important thing about a budget is to observe it: it's true that sticking to a budget requires discipline, but it's also true that if you make a good budget, it's easier to stick to it.
Big-ticket items normally involve credit, such as a mortgage or car loan. According to CPA Joe Gelb, “A bank reviews your personal financial statement when you apply for a mortgage. It looks for housing costs that are below 33 percent of your income. The key is to take a realistic view of your likely household income and purchase a house or condo that fits into your budget. You can also adopt the same approach when you buy or lease a car. While maybe not as exciting, a basic car like the Honda Civic costs approximately $18,000. The monthly car payments are a lot lower than those for an Acura, which costs approximately $38,000 and is built by Honda."
You might be surprised at how much it costs to eat out or to purchase prepared meals. If personal finances are tight, preparing meals for your family and packing lunches can save money. Grocers usually highlight discounts and special savings in weekly flyers. Seasonal items are also often a good value. Planning your week’s menus around what's on sale can save on your grocery bill. Depending on your interests and needs, you can even learn new skills to save money, such as gardening or cooking. A cooking class might cost money up front, but it can also open a whole new world of tasty and economical meals.
“Depending on where you live, your electric utility bill can vary from $50 a month to $500. The amount of your monthly electric bill also depends on the size of your dwelling, the number of people who live with you, how many hours a day you and your family members use electricity and the appliances you have. An ‘all-electric house’ with electric heat could run you $1,000 a month -- ouch!" says Gelb. Turning off your appliances when not in use, investing in energy efficient appliances and light bulbs and using sustainable energy sources is a great way to reduce costs. You can also cut your electricity bill by three to five percent by turning down your thermostat by two or three degrees.
The face of medical insurance is changing and 2014 promises to be a watershed year for millions of uninsured people. Starting in 2014, you will be able to buy into money-saving insurance pools, even if you have pre-existing conditions. For the uninsured on a tight budget, medical premiums might seem like an added burden and expense. But consider that preventive health care can keep you healthier in the long run -- which not only saves money but can improve your quality of life.