Ever needed to cut spending and slash your budget to the bone?
January can be a tough time financially. If you got paid early before Christmas, it can be a looooong wait before January’s pay packet – just as credit card bills for Christmas spending show up.
Tune in to BBC Radio Suffolk this Sunday at 13.25, when I’ll be sharing tips on ways to save money and avoid debt
Facing up to your finances can also reveal bigger problems that need drastic action.
Many of us are only one life event from disaster. Relationship, illness or job loss can all create a financial crisis. Even happy events, like maternity leave, can mean money stops coming in while the bills are still going out. It’s scary how fast savings can shrink, as I know only too well.
I’ve been forced to slash my budget several times: as a student, after I left my first job and freelance work dried up but my mortgage didn’t, after my kids were born and when we moved to the country and my husband was looking for work locally.
As a money blogger, I’ve also been asked to rip other people’s budgets apart and suggest where it’s possible to save.
So if money is teeth-grittingly tight, here are my practical tips for each spending category, when you need to slash your budget to the bone.
Start with regular bills
Your first mission to tackle each bill in turn. Every. Single. One.
So dig out bank account and credit card statements, or unearth your log in details for online banking, and track down all your direct debits, subscriptions and regular payments.
Want help tracking down regular payments? How to save money on your bills with Bean
Shrink boring but essential bills
Rent or mortgage: Short of moving home, you can’t escape rent or mortgage payments. But you can see if you can get a lower interest rate on your mortgage. For example, if you’ve paid off a chunk of your mortgage, or house prices have gone up, you may qualify for a lower rate if you’re borrowing a smaller part of the value.
Council Tax: Again, short of moving, you can’t escape Council Tax. But if you are on a low income, or a pensioner, you may be able to apply for Council Tax Reduction.
Water: If you’re on a meter, investigate ways to use less water and stop money disappearing down the plughole. If you’re on benefits and have specific reasons for using a lot of water, you may be able cap your bills with WaterSure.
Gas and electricity: Check you are on the best deal, and switch if you’re not. Then check out ways to use less energy. (Side note: I switched to Bulb as my electricity supplier, and they’ll pay both of us £50 if you do too).
Mobile: Paying for a fancy phone and over-inflated airtime package? Slash mobile bills by keeping your current handset and switching to a smaller SIM-only deal.
Landline: Check for a cheaper deal with a different supplier or smaller call package. We save money by paying upfront for a year’s line rental.
Broadband: See if you can pay less with a different supplier, slower speed or smaller package.
TV licence: Essential if you watch live TV, but considering cancelling if you don’t.
Transport: Commuting costs can be hard to avoid, but try to get creative. If your company offers flexible working, could you work part time from home, or change your hours to take advantage of lower fares or cut travel time (and therefore fuel costs)?
Annual bills, such as car insurance, home insurance and breakdown cover: With bills you only pay once a year, check if any savings from switching are worth more than any cancellation fees. If not, make a note on your calendar just before your contract ends – don’t auto renew without checking if you could get a better deal!
Pensions and protection: Much as I recommend slashing spending, I have always kept up payments for pensions and life assurance, which can be vital to protect your financial future. If you’ve been auto-enrolled into a pension scheme at work, it’s worth paying in enough to get the maximum contribution from your employer. Otherwise, you’re turning down free money.
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Ditch nice-to-have bills
This is where slashing your budget might start to bite. Once you’ve shrunk essential bills, it’s time to cancel anything else you can.
If you’re finding it tough, remind yourself this needn’t be forever, just until you dig yourself out of a financial hole.
Subscriptions you no longer need or use: Start with the easy ones – mobile phone insurance for the handset you no longer have, the gym subscription you don’t use, the magazine you don’t read. Get rid.
TV subscriptions: If money is really tight, turn off the likes of Sky, Netflix, Now TV and Amazon Prime, and stick to Freeview instead.
Other subscriptions: Believe it or not, it is possible to live without Spotify, Apple Music, audiobook subscriptions and coffee/beer/snack/beauty boxes 😉 Ditch any regular payments for optional extras, and look for free alternatives.
Childcare: If you pay for regular childcare, is there any way you can shrink the bill? Enlist friends or family to help? Switch your working hours? Even shedding one session a week adds up.
Savings and investments: Stop any standing orders until you can afford them again, including any payments to child savings accounts.
Charitable donations: Pause donations while you sort out your own financial affairs.
Deal with debts
Debt is expensive, unless you’ve magically got interest-free deals on everything. Debt repayments can eat up a massive chunk of income.
Overdraft: Overdraft charges are high and rising, especially if you regularly use an overdraft. Ideal world, you need to pay off debt, starting with the highest rates, rather than creating more. If you have savings or Premium Bonds earning next to nothing in interest, consider using the money to clear your most expensive debts. Every debt you clear frees up cash to repay the rest, and then rebuild your savings.
Credit card debt: If your credit score is strong enough, see if you can switch any credit card debt to a 0% interest balance transfer deal. Crucially, you then need to stop spending on the cards you’ve cleared.
Car finance: Think hard about whether you could swap to a smaller, cheaper car – or even do without. As an added benefit, you’d also cut the cost of fuel, insurance, repairs, servicing and car tax too. If you’re part way through a contract, check out the potential for ‘voluntary termination’.
Focus on food
Food is one of the big three expenses for most families, along with transport and housing. The key to cutting food costs is to cook.
Slash spending by banishing ready meals, takeaways and eating out, and unleashing your inner chef.
Yes, you may need to spend more time on meal planning, shopping lists, cooking meals and preparing packed lunches, but you’ll spend a lot less in cold hard cash.
Live a ‘no spend’ life
Regular payments have the advantage that they are easy to identify. Shrinking or cancelling each one is hardly gripping, but once done, it makes a difference every single month.
Other spending can be trickier to tackle: clothes, toiletries, hair and make up. Toys, hobbies, holidays and home maintenance. Presents, socialising and entertainment. It’s all too easy for money to disappear into a big black hole.
So my default position on spending beyond essential bills and food is: don’t do it. When times are tight, I aim for a ‘no spend life’ – and only add back expenditure I can justify as essential.
Each time expenses arise, I ask myself:
- Do I really need this now?
- Often it’s not something essential at all, or it’s a purchase I could put off.
- What have I got that I could use instead?
- I start by shopping from the contents of my cupboards, using what I already have before buying new.
- Could I get it for free?
- Can I find hand-me-downs, swaps or from sites such as Freecycle? Borrow stuff rather than buying?
- Could I get it for less?
- Even with expenses I just can’t avoid, such as when the kids need new shoes, I still look for different shops, sales and vouchers to cut the cost. I also check for second hand, refurbished or cheaper alternatives.
I’m reluctant to use the term ‘mindful’ spending, but I do recommend questioning each purchase, rather than buying on autopilot. I also recommend starting a spending diary, to become more aware of where your money goes (tips here and here).
Get paid to spend
It seems madness that I can earn money from essential spending, but I still grab the chance to earn cashback wherever possible:
- Cashback websites
- Check out websites such as TopCashback and Quidco every time you shop online, to see if you can earn some money back. Payouts can be particularly generous if you’re switching bills or financial products – energy, broadband, mobile, landline, insurance, credit cards and so on!
- Loyalty cards
- I’d never recommend shopping somewhere just for the loyalty points, but if I’m shopping somewhere with a loyalty scheme, I’ll pick up any points on offer.
- Cashback current accounts
- You can even get paid to pay your utility bills. Sadly NatWest is about to change its Reward current account, but the Santander 123 and Santander 123 Lite accounts still pay back between 1% and 3% of household bills.
- Cashback credit cards
- I’m reluctant to mention credit cards, as they can tempt people to overspend. But if you can guarantee to pay off your balance on time and in full every month, a cashback credit card will pay a tiny percentage of money back.
- Refer a friend offers
- Always ask around if you are using a site or service for the first time, to see if you can benefit from ‘refer a friend’ offers.
You don’t have to do this alone. You could ask a trusted frugal friend to take a look at your budget, and make suggestions.
But if you’re struggling to pay essential bills and cover minimum debt repayments, you need more help. Do consider contacting one of the free debt help services, such as StepChange, Citizens Advice or National Debtline. The only thing you’ll regret is not doing it sooner.
Previous post: Debt Saviours and where to get help with debt
Now – over to you. Have you ever had to cut right back? What are your top tips on cutting your budget to the bone?