Instead of a budget, I prefer to compile a cash flow statement. A budget usually consists of forecasted figures, whereas you need to work with actual figures. And that’s exactly what you input into a cash flow statement. To get the actual figures, you need to capture the receipts and invoices as you receive them. Delaying that exercise until month-end could result in a loss of receipts or being put off by the exercise of needing to process a stack of receipts.
After capturing all of your receipts and invoices, you have a complete picture of all of your expenses. Housing, transportation and food should be your three biggest expenses. How much of your take-home pay should you dedicate to these expenses?
Housing
If you own property, your housing expense is likely to consist of a mortgage payment, rates, taxes, levies, repairs, insurance, water and electricity. If you rent, you most likely don’t have to pay rates, taxes and insurance, but you’ll have utility expenses. Of course, instead of a mortgage payment, your expense is rental.
Transportation
Your transportation expenses are likely to consist of the vehicle installment, gas, repairs, insurance and parking tickets. If you own your vehicle, well done. You’re in the minority. Most people are spending around $500 monthly for a used vehicle, and that’s just for the installment. New vehicle owners are spending a minimum of $700 a month on an installment in the U.S.

My total vehicle monthly expense was 30% of my income. That’s absolutely nuts.
Food
Let’s hope that you’re not like most people, who spend more on takeouts than on groceries. Maybe your cash flow statement is a combination of both. Mine was. But when I decided to get out of debt, I completely eliminated takeouts and only bought groceries.
The Solution
When you combine the housing, transportation and food costs, they should not be more than 50% of your net take-home pay. Why 50%? It’s because you likely have consumer debt, general expenses such as internet, gym and phone, and you still need to save money. That accounts for the other 50% of your income.
What if that’s not the case?
My total percentage of those expenses compared to my salary was around 75%. That’s too much. No wonder I wasn’t able to save money. What if your figures are similar or even worse? You need to make adjustments in your lifestyle.
That’s the part that nobody wants to do. The reason is that most people are used to their fancy cars that come with a hefty monthly payment. They don’t want to move from their upmarket neighbourhood because moving is stressful and people will gossip about their downgrade in lifestyle.
If you own a home, it’s more difficult for you to move than if you rent. In that case, start with reducing your transportation and food expenses.
It’s possible to find a reliable vehicle for three or four thousand dollars. Sure, it might have high mileage, and it won’t be as comfortable as the SUV that you can’t afford but you keep it because your colleagues and friends think that you’re so cool for owning such a fancy vehicle. But you will be the owner of the car that you bought for a few thousand dollars, and you don’t have to worry about making a payment every month or having it repossessed if you default.
Already, you’ve saved yourself money and headaches just from one expense. Now, tackle the other expense.

You don’t have to eat out. It’s not necessary. As I mentioned, I stopped doing that completely until I got out of debt. But I took it one step further. I was very selective about the groceries I bought. I’d, usually, buy only food that was on sale, which happened often at the supermarket where I bought. You can buy at a farmer’s market. That’s where food tends to be cheaper and healthier than at shops.
Now that you’ve reduced your transportation and food expenses, the remaining one is housing. Whether you own or rent property, you can reduce that expense. House owners usually have a bedroom or a cottage that they can rent.
If you rent a two-bedroom place and use only one bedroom, rent it out. Otherwise, look for a place to share with somebody. That’s likely to reduce your rental expense by, at least, 30%. I did that.
I used to live in a one-bedroom place that was 500 metres away from the beach. It was in a quite area, and I absolutely loved it.
But I wanted to save on my rental expense, so I made the necessary sacrifice, and I rented a bedroom from an elderly couple. They lived in a three-bedroom townhouse with their dogs. I was never a fan of animals living inside the house, but I had to tolerate it for the sake of cheaper rent.
There you have it. You’ve reduced your three main expenses and have likely brought down those expenses to a combined total of 50% of your net take-home pay.
This exercise will require sacrifice. You’ll have to make adjustments in your lifestyle and the comfort that you’re enjoying. Sure, it might mean that you’ll downgrade. But remember, it’s only temporary. The adjustments that you’ll make will improve your finances. Seeing more money in your account at the end of the month will serve as a great reward that will motivate you to keep going because you can dedicate those funds to debt to pay it off faster.
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