There are two schools of thought when it comes to balancing a budget: increase income or reduce expenses. Ideally, we’d be able to do both, but with business closures and social distancing recommendations in place for the foreseeable future, it might be tough to boost those profits, so let’s look at tightening our belts.
Every budget has two sides – income and expenses – and expenses come in two flavors: direct and indirect. Direct expenses are tied directly to a specific good or service. These are the expenses you have when you perform the duties of your job and provide your services to clients. The cost of retail stock, color solutions, developers, massage oils, credit card processing fees, salaries and commissions are all direct expenses. Indirect expenses are tied to the act of being a business and doing all the things a business does. Indirect expenses include rent, insurance, office supplies, utilities, business meals, education and more.
The same idea applies to your personal budget. Your income is the money you bring in, but those expenses are still direct and indirect. For your personal budget, direct expenses would be the expenses that cover your basic needs: food, clothing, shelter, essential utilities, safety and security for you and your family. Indirect expenses are all the extras that give life a little flavor: favorite fashion labels, dessert, the top-shelf drink you enjoy after a long day, cable TV, date night, taking the family to a movie or ordering on-demand, concert tickets and those other non-essentials.
If we’re looking at making cuts and reining in spending, we have to look at the indirect expenses first. It’s not fun to cut out the things that we love about our personal and business lives, but sometimes it’s necessary when we face lean times. (And look at the bright side: With everyone stuck at home, unable to visit their salon for their beauty upkeep and unable to visit the spa to de-stress, we’re in an industry that, once businesses reopen, will reopen with a bang.)
Cuts can come from a number of areas, but before you grab your shears and start snipping, you need a plan. If you don’t have a solid personal budget, this is your chance to get serious with it by taking a few small steps.
First, you need to understand where your money is going and track those indirect expenses. Go grab – or download – your last two or three credit card and bank statements. Take a highlighter and highlight those non-essential purchases. You know the ones. The unnecessary coffee, the splurge lunch out, drinks after work, the cable bill (where, if you’re like me, you can lose a few channels you never watch and save some money every month), that pick-me-up shopping spree you did in stores AND the one on Amazon (and that other one on Amazon). Note them, with amounts, and see where you are after you look over those cards and bank statements.
It’s eye-opening. And sometimes alarming. But when times are good it’s easy to spend a little here and a little there and never miss it; today, that’s not the case, and I’d wager that if half of these indirect expenses were sitting in your bank account right now, you’d be pretty happy about it.
Now that you know where the money is going, it’s time to break out the shears and cut, cut, cut. Are you paying for three Spotify subscriptions? They have a family plan and it’s a lot cheaper. Do you have Hulu and Netflix and Amazon Prime and Disney Plus? Drop the ones you watch least and save that dough. The Amazon shopping sprees? They’re tough to stop, but be mindful of your online purchases (even if that means filling your cart, walking away from the computer for 20 minutes and then evaluating what you really need before you click “complete purchase”) and you’ll save. Date nights out are date nights in; movie night means one movie for the family, not one for you and your spouse and another for the kids.
You see where I’m going with this.
Not all of the savings you can find are from your indirect expenses. There are things we can do to help with some of the direct expenses.
Take the rent or mortgage you pay on your business and on your home. A letter to your landlord asking for a reasonable rent reduction or even pause in rent payments (until we’re all back in business) may result in reduced or even paused payments, keeping your money close to home. Similarly, a call to your mortgage company or landlord asking for a temporary adjustment to your mortgage or rent payment could see your expenses lowered. Many credit card companies and loan providers have announced voluntary payment holds, interest freezes and other measures to help their customers in need weather the current storm. Emergency relief like this is often available if you just ask.
If you want to talk more about this and get specific about the issues you and your business are dealing with, you can reach out by calling me direct at 812/455-1367 or by emailing me at [email protected]. I, along with my team of coaches at Empowering You, have set aside time for one-on-one Strategy Sessions, complimentary phone consultations where we focus on the problems, you’re facing and develop solutions that work.
I’ll be taking an in-depth look at this topic with a free webinar soon. Everything you need to join us live – or to watch a replay later – is available at www.empoweringyouconsulting.com or on Facebook, so tune in and be part of the conversation as I explore more ways to impact our personal and business budget.