Has the family budget become too tight for comfort? These steps to reducing the family budget can help ensure your income exceeds your expenses once again.

Dear Dollar Stretcher,
Week after week, the money just goes. Our bills total almost as much as our take-home pay. We have very little left for savings.

I am trying everything I know. I buy very few convenience foods at the grocery store. I have my heat set at 69. I had my grocery bill down. For a little while, it looked like things were going well and then everything started climbing again.

What can we do to reduce our budget and actually get ahead?
Kim

Kim’s question is a common one. A family spends more than they make. So they do a little homework and put some numbers on paper. The next step is the hardest, but most crucial one. Finding out what to do to close the gap.

Fortunately for Kim, and everyone else who has faced this problem, the question can be broken down into smaller, more easily answered questions.

How Big Is the Gap Between Your Income and Expenses?

The first question that she needs to ask is how big is the gap between income and expenses. If you’re looking for $50 a month, you can consider taking a lunch to work. But if you’re short $500, then lunches just aren’t going to cut it.

Realistically, you can cut about 10% of many monthly bills. If you try real hard, you’ll reduce 15%. But, unless you just waste money at every turn, it’s very hard to save more than that without changing your lifestyle.

If your expenses exceed your income by 10% or more, you probably need to consider major changes. You’ve either spending too much on house or auto payments or you’re living way beyond your means.

When your housing and auto payments combined are more than 45% of your take home pay, it becomes difficult to balance your budget. Usually the only solution is to refinance or trade for a less expensive home or auto.

It could be that payments for past purchases are dragging you down. Kim’s credit card payments may not be too bad, but many people could balance their budgets if it weren’t for credit card minimums. Consider consolidating the debts to a lower interest rate home loan or credit card. If that’s not possible, it may be time to contact a credit counseling company for help. It’s also time to consider cutting up the credit cards.

How Can You Close the Gap Between Expenses and Income?

Kim is fortunate that she’s not facing a huge problem. If she can cut $100 to $200 from her budget, things will look a lot better. So where should she start?

Cut as Many Expenses as Possible

For most families, the groceries/food area is the best place. We spend a lot on food. We also make a lot of decisions about buying food. That makes it easy to save a little bit each day.

Next, she should price shop her homeowners insurance and auto insurance policies. A change in coverage or company could save hundreds a year. (See also: How to Save Money on Your Homeowners and Auto Insurance.)

After that, it’s time to look at her utility bills. The best way for Kim to evaluate her utility bills is to compare them to her neighbors. If your home is about the same size, but your bill is much larger, then you know that something is wrong. (See: 32 Ways to Save Money on Your Utility Bills.)

After all this, Kim may still find that there’s not enough money at the end of the month. When that happens, she’ll have to consider dropping some lifestyle choices. Perhaps they really can’t afford cable TV, extracurricular activities for the kids and cell phones.

Related: Creating a Spending Plan for Frugal Living

Consider Additional Income Sources

Kim can look for ways to turn time into money. This can be done three ways. The first is by being a super shopper. Maybe she can find the time to search out consignment shops and yard sale bargains.

Secondly, she’ll save by avoiding purchases. Sewing, gardening and cooking from scratch all reduce expenses.

Lastly, Kim or her spouse might be able to increase their income with a part-time job. Even something one day a week might be just the ticket.

• Earn Money Without Leaving Home
• Side Gigs That Can Make You Extra Cash
• The Many Ways You Can Make an Extra Income

A Couple of Final Thoughts

If Kim’s family is carrying a credit card balance, that creates a problem. If they don’t create some room for savings in their regular budget, sooner or later they’ll run up a credit card balance again. The only way to avoid that is to save some money each month for an emergency fund.

Often it’s a combination of things that put a budget into shape. Hopefully, Kim will find the combination that works for her family’s budget.

• 5 Simple Budget Cuts That Can Save $200 a Month
• Get Your Financial House In Order: A Simple 6-Step Plan
• When Expenses Exceed Income
• Reduce Your Debt with a Sinking Fund
• How a Family With Children Is Getting Out of Debt

Reviewed March 2024

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.