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Layoff Budget Cut Analysis

Budgeting | 3 Comments | 675 Views | 0
By: Keith Morris , February 02 2010

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Darwin's Finance had an interesting post yesterday about where the author might be able to cut spending in the event of a layoff.

Having experienced the challenges of the current job market first-hand, I've thought about this some myself. How could I bring my expenses down and stretch out my emergency savings if I were to lose my job? Last month was my first attempt at maintaining a budget ever. Now that I have a baseline, I can easily see where I can shave some money off the budget. Here's my version of Darwin's analysis:

Food: $200

My budget combines grocery shopping and eating out into one sum. I think I could easily shave $200 off of my food spending by buying more groceries and eating out less.

Communications: $100

My communications budget includes cell phone payments, internet, and cable TV. It comes out to $325/mo, but I think we could reduce this considerably by getting rid of digital cable, our DVR, and text messages from our cell phone plans. We could save even more by combining our cell phones into a family plan, but that would require Meghan to change her phone number.

Entertainment: $100

If we had to, we could eliminate our World of Warcraft account and stop going out to the movies.

Shopping: $100

No more books, iPhone apps, clothing purchases for a while.

Gifts: $100

We donate about $100/mo. This would be one of the last things to go, but it is something we could eliminate if we were really strapped.

Insurance: $500

I wish I didn't even have to consider this, but let's face it: as an absolute last resort, if we're out of money, we could save $500/mo by dropping health insurance. It's more important to be able to eat now than to be prepared in the event of an unlikely catastrophe.

Total shavings: $1,100

How about you?


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COMMENTS (3)
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Keith,
I loved (almost*) your ideas to cut spending and the Darwin's Finance has some excellent ones as well. This is a subject near and dear to my heart. You might want to use the tool Income & Expense Data Sheet to see if you can’t find some more savings. Focus on the “Green” and “Yellow” expense areas.

Some additional ideas:
• Food – it is very important to separate grocery expenses from dinning out. You’re correct by focusing on the dinning out expense, you will cut expenses.
• Communications – Most cell phone companies allow you to add a member of the family without that person having to change their number. You could eliminate your home phone and only use your cell.
• Cable, etc. – Look for package plans, eliminate cable channels except the basic ones and sign up for Netflix. Netflix has streaming over the internet even with their most basic plan at about $9.00/month. Grab that popcorn and enjoy!
• Brownbag your lunch, buy an insulated coffee mug and thermos water bottle.
• Consider the store brand for food items and use coupons for ONLY items that you consistently use. Buy in bulk when items are on sale.
• Consider using an on-line budget/expense tracking tool or software package such as Quicken. By setting a budget and tracking your expenses you can see how you are doing and look at expense areas that you might have fallen short on achieving your goal.

* A word of caution, do not consider eliminating your health insurance expense. If you do you expose all of your assets, except some retirement accounts, to creditors. A simple cut and visit to the ER can end up costing you hundreds of dollars.

Lastly, build up an emergency fund of between 3 and 6 month’s of non-discretionary and somewhat- discretionary expenses.

by   Tom Doyle  on  February 02, 2010 at 01:59PM EST
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Thanks for the advice, Tom!
Regarding communications, Meghan and I have only cell phones and no home phone. However, her account is in NY and mine is in NC. In order to combine them into one family plan, they would have to be in the same billing district. We've gone over this before with AT&T.
Can you elaborate on why it's important to separate groceries from dining out? I figured if we have a $600 food budget, and we manage to stay under budget for most of the month, then we can reward ourselves with the remaining food budget to dine out. This way we have an incentive to stay under budget.
by  Keith Morris  on  February 02, 2010 at 04:27PM EST
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It's easy to drive and telecommunicate your way to the poorhouse! Meaning spend a ton of your disposable income on cars and phone, internet, cable/sat TV. This stuff should be first to go if money is tight, because while some level of spending may be a true "necessity" most of it isn't.

That cable, phone, cell bill of $325/month is really high. Check out this nifty graphic on the NY Times site, that shows how the government thinks you spend your money:
http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.html

You'll see that those add up to about 3% of spending, based on averages. Or put another way, $325/mo would be average if all of your spending added up to $130,000 per year. If your income is below that, you're way above average on telecom spending. Are you adding $325/mo or more to your retirement savings? =)

And this is hard to accept but...these aren't necessities. TV and texting especially. We pulled the plug on the satellite awhile ago and never looked back...easy to do in an age of Netflix, Hulu and all the other stuff. An easy budget cut for many is to move to basic cell and the cheapest DSL you can find - or cut a deal with the neighbor to share wifi, if that's possible. There's $250/mo of fluff in that telecom bill!

As for health insurance...it really needs to be treated as a necessity, not something optional. Medical care in the US simply isn't priced for the cash buyer, so very minor events can wipe you out. If it's on the budget block, consider ways to at least maintain coverage with higher deductibles, such as with an HSA-compatible plan. Eventually you'll know someone that made the choice not to do this, and got hit hard from the random kind of accident that can happen to any of us, any day.

-Tad
by   Tad Borek  on  February 02, 2010 at 04:28PM EST
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