As a self-employed individual, I'm responsible for finding my own work and creating my own income. This also means that I keep my margins pretty thin and do my best to keep expenses minimal. Therefore, when my income recently took a hit, it meant that it was time to take action. In my view, if I don't have money coming in, I'd better make darn sure I'm doing everything I can to keep it from going out. This meant that it was time to start making cuts to a budget that had already been whittled pretty close to the bone.
As I started looking at the numbers, I began to realize that the process of cutting more was going to be like trying to squeeze blood from a turnip, but that didn't keep me from trying.
Finding Creative Ways to Cut
Sometimes you have to find that silver lining in a tough situation. One way I do this when it comes to a reduced income is through taxes. While it might sound counterintuitive, sometimes I have to pull a positive from a negative situation and turn that lemon into lemonade. That being said, creativity can help me a lot in such a situation. Consider income taxes for example. Well, the less I make in income, the less the government takes in taxes. And as a self-employed individual who must pay both sides of the payroll tax, when you figure that for every dollar I don't make, it's over 10 percent in payroll taxes alone ($100 for every $1,000 I make after the deduction for the employer side of the payroll tax), the savings in this budget area can start adding up quickly.
Slicing Reserve Funds and Hoping for the Best
I tend to factor a $50 to $100 reserve fund into each of my monthly budgets just to counteract those surprise costs that always seem to pop up no matter how well I plan for them. While I enjoy having this little piece of mind, when times are tight and income is low, piece of mind can come at a premium.
In the past, I typically carry over my reserves month-to-month, but with a reduced income, I've had to take drastic action. Therefore, for a month in which I've budgeted a $100 reserve, each week I move forward throughout the month without an unexpected cost popping up, I cut $25 off this amount. For a month with just $50, I do this every two weeks. While it reduces my piece of mind, this acts to push me even harder to make tough decisions when it comes to other spending.
Cutting Back on Food and Entertainment
When I refer to "other spending", these discretionary costs typically come in the form of food and entertainment expenses. Sadly, we're already pretty tight on such expenses, usually forking out less for our monthly food allotment than many food stamp recipients receive. This however doesn't mean that we can't try to cut more.
When it comes to food, we have to pair relatively healthy eating with saving money, which can be hard. However, sometimes a cut in the budget can actually help us make this balance. Cutting out things like alcohol, cookies, cupcakes, and other treats, as well as items like bacon, beef, and more expensive meats, and nixing pizzas, cheeses, and certain other items not only helps us cut our costs but eat healthier too. To replace these items, we have found ourselves buying the fruits and vegetables are on sale as the store and using these as replacements, forcing ourselves to come up with new and innovative meal options that feed our family yet help us shave little bits off our budget.
For entertainment, ditching the annual day drive up to Milwaukee for the IndyFest IndyCar race was the first summer fun item we cut. We also cancelled plans for a trip down to Indianapolis for the Indy 500 or even just a day of qualifying. Such adjustments cut our entertainment budget by between $200 and $600 for tickets, food, and reduced one of the most costly aspects of such trips…gas.
While so far, it's only cut an extra $5 to $10 a week in our food budget, and about the same in entertainment, every little bit adds up, and that's an extra $40 to $80 a month or between $480 to $960 a year in lowered costs in these two areas.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
- Personal Budgeting
- Budget, Tax & Economy