Budgeting – How to make personal budget cutbacks

You know that you need to cutback on your outgoings but you do not know where to start.

Let me help you. This is a little psychological tool that I developed back in 2005 when I had to cut big chunks out of our day-to-day expenses just to survive.

I call it the Thrifty Grid.

The Thrifty Grid

This idea works on the basic premise that are some things you need to survive and some things you don't. For each of these things, you may be getting good value, or you may be able to get better value by doing some shopping around.

You can put this on a grid as in the picture and you end up with four areas:

• A – Necessities which are good value for money
• B – Necessities for which better value for money is available if you look
• C – Non-Necessities which are good value for money
• D – Non-Necessities for which better value for money is available if you look

Make a list of your expenses. You could use my receipt box idea for this.

Examine each expense in turn.

When looking at an expense you just need to ask two questions:

• Can I survive in my day-to-day life without this? If not, then it is a Necessity.
• Can I get this cheaper? If not, then it is Good Value.

Necessities are things that you need for physical survival – food, shelter, healthcare and transport to work, for instance. Some people would put things like cigarettes into A, I certainly would not. It depends on your circumstances. Use your own intuition

Making Budget Cuts

Here is how to use the Thrifty Grid to make expense cuts:

• Divide all your expenses up into each one of the four areas. 
• You cannot cut beyond A without safety and welfare concerns. You can however cut almost everything from D immediately and possibly also from C.
• Once C and D have been dealt with, start moving all your Necessities from B to A by looking for the best value you can get. Sometimes better value will not be available, but looking is normally free

I have provided a PDF of the Thrifty Grid.

Time to start cutting.