Week 6: The Power of Your Budget

This is Week 6 of our Zero Debt Action Plan, which is designed to help you get out of debt even faster! Learn more and sign up for the 9-week plan right here.

In Week 2, we discussed how you can reduce your spending. Now we’re going to review your progress toward saving money and build upon what you’ve accomplished so far. Remember budgeting and cutting your expenses can take time – so just focus on making progress, despite any momentary setbacks.

We’re including even more tips below, as well as some psychological tricks to help you find new ways to save money and meet your monthly budget.

Action 1: Check up on your budget

Have you been tracking expenses? Back in Week 2 we told you about our awesome spreadsheet as well as the one from EnemyOfDebt. It’s now time to take a look at your spreadsheet (one month later) and see how you’re doing. Your goal was to reduce your monthly budget by at least 10%, so grab a calculator and let’s see how you did!

Take a look back at your list of categories (15 min): Remember how you set spending targets for yourself in various categories? It looked like this:

  • Meals: $300 ($30 cut)
  • Clothing: $50 ($25 cut)
  • Entertainment: $70 ($10 cut)
  • Phone Bills: $50 ($5 cut)
  • Gas: $100 ($10 cut)

Go through each category and determine whether you’ve been successful in meeting your goal. Pay special attention to the categories where you spent significantly more than you planned to. Identify why that happened: was it one too many stops at Starbucks? Or maybe an ill-advised shopping trip at the mall?

Use what you’ve learned to improve next month: Whatever it was that caused you to spend more, try to figure out a plan for avoiding those mistakes from now on. You should continue to use the tips from previous weeks (and the new ones below) to save money in each of these categories.

Cash vs. Debit: Which method have you been using? Do you feel like it has been helping you avoid buying things you don’t need? Refine your spending strategy to incorporate whatever methods work best for you. If the “envelope method” helps, continue using that.

Action 2: Cut your spending even more

Below, we’re going to walk through a few more powerful ways to minimize the amount of cash leaving your wallet each day. These can really help you meet your target spending goals in each category.


Brown bag (or Tupperware) lunch (20 min per day): If you plan your meals in advance – as we discussed in Week 2 – you can find opportunities to turn leftover dinner into a tasty lunch! You can even get creative and put last night’s stir fry into a tortilla with cheese, or create a lentil sandwich from the leftover soup you had for dinner the night before. And the savings ($5-$10 per day) can add up to a lot of money over the course of a month.

Use frozen dinners strategically: On those nights when you just don’t have the energy or time to cook dinner, use frozen dinners to help you resist the urge to eat out at a restaurant. By combining a frozen dinner with a few quick ingredients from your fridge, you can have an easy and satisfying dinner in minutes. And you’ll still save a lot of money vs. a restaurant meal. (Read this article for specific instructions on how to make this work)

Ban sodas and bottled water from your life: There’s no reason you ever need a soda. The same goes for bottled water, unless you’re in a desert or amusement park with only a vending machine. In most places where you’d drink a soda or bottled water (a restaurant, movie theatre, at home, etc.) there is free tap water available. It’s just as thirst-quenching as bottled water and healthier than soda, plus you save a few bucks easily.

Choose a low-cost coffee: Instead of buying a cup (or two) at Starbucks every day, get a cheaper version at the grocery store. Consumer Reports recently did a taste test and found that a brand called Eight O’Clock Coffee scored highly — and costs only $0.16 per cup! (You can also buy your favorite Starbucks coffee by the pound and brew it at home or at the office to save money)


Cable and movies: Cut back to basic cable or just cut out cable entirely. Hulu plus and Netflix can take care of most of your television viewing needs. If you just HAVE to watch Dexter or True Blood, you can subscribe to premium channels like HBO, Showtime etc. for the duration of the show only and cancel it when the season is over.

Use psychological traps: We like to think that we act rationally, but when it comes right down to it, our decisions are influenced more by our emotions than our thoughts. So sometimes you have to usepsychological traps to make yourself behave in certain (positive) ways. For example, when you go out to a restaurant with friends, bring only the amount of cash you want to spend – and no credit card. It will be much easier on you to then simply buy a cheap menu item rather than go find an ATM to withdraw more cash to pay for a fancy bottle of wine or a filet mignon.

Cell Phone:

Use an alternative: Services like Google VoiceSkype, and other Internet phone providers offer free or low-cost calling. You can use these strategically to reduce the minutes you pay for from your cell phone provider.

Don’t get caught by text message fees: These can add up quickly, so be sure to check your bill each month and if you’re constantly getting charged for using more than your allowed number of text messages, change your plan!


Negotiate a better auto insurance rate: Find the best rate for you using online tools or by simply calling your current provider. Here are a few ways you might be able to get a lower rate:

  1. Put all your insurance polices – auto, homeowners/renters, life, etc. – under one provider to get a big discount.
  2. Many insurance providers offer a discount if you take a defensive driving course. Do this if possible, as it can save you some serious cash over time.
  3. If you start driving less (for example, if you switch to public transportation for your daily commute), notify your provider and say that you’d like a better rate.
  4. When your car gets older – especially if it’s more than 12 years old – you might want to reduce collision coverage, which pays for any damage you cause to your own vehicle. Cars lose much of their value over time, so paying a higher monthly premium may not make sense for older vehicles.

Make better use of your commute: The things we do every day are ones that have the most impact on our budget. That’s why you can save a lot of money by changing your daily commute:

  1. Don’t stop for breakfast on the way. Instead, give yourself enough time to have a low-cost, high-energy breakfast before leaving the house – like oatmeal, a bagel, and fresh fruit (and coffee, if you like).
  2. See if you can eliminate 20% of your commuting by asking your boss if you can telecommute one day per week or work four 10-hour days instead of the regular 5-day schedule.
  3. Find even more tips in our blog post, The Daily Commute: 7 Ways to Maximize Time and Save Money.

Action 3: Start a Savings/Emergency Fund

Get started: If you haven’t already started an emergency fund, you should start building one immediately. Conventional wisdom says that people without an emergency fund are more likely to get in debt – and in this case, conventional wisdom is right. Having an emergency fund allows you to do “preventative spending” when necessary. Let’s say you have a toothache but you decide not to go to the dentist because you don’t have the money. Eventually, your toothache turns into a full-fledged cavity or infection, which forces you to spend even more than you would have (and rack up more debt). Having an emergency fund allows you to pay for those unexpected things that could become bigger problems later.

Find the right balance for you: The tough part is deciding how big your emergency fund should be. Some experts say you should have 3-months salary saved up, some say 6-months, and others think $1,000 is fine for starters. Think about the likelihood of major disasters in your life – such as a job loss, serious health problem, etc. If you believe you may need money to take care of this type of situation in the near future, you should aim for a larger emergency fund – of at least 3 months salary.

Don’t save too much when you have debt: Once you have enough saved up to feel secure, use the rest of your available cash to pay off your debts – and start with the highest interest account first! (ReadyForZero can help you figure out which debt to pay off first) After all, paying $1,000 toward a credit card balance with a 15% interest rate is a lot better than earning 3% interest on a $1,000 savings account.

How to assign funds to debt vs. emergency funds: This can be a tricky one to answer since they compete with each other and are equally important to tackle. Here are some rules of thumb based on your situation:

  • No money in savings: If you have to build savings from scratch, as much as we hate to say this, you should start the fund by making minimum payments for 2-3 months and putting any savings you have each month into your emergency fund.
  • Some money in savings: If you have 20-40% of the target emergency amount in savings, you should continue to add to it while paying off debt. But instead of paying all extra savings above your minimum payments into this fund, put in 50%, and use the rest to pay off more debt.
  • No contributions elsewhere, period: This means no IRA, no CDs, no 401k contributions, etc., until your debt is payed off. The only exception is when an employer matches 50-100% of your 401k contributions since that means you’re getting 50-100% return on your investment.


Now you are really making serious progress! This is a crucial time to double down on the work you’ve already done to get your financial life in order. Challenge yourself to keep up the momentum and continue using the tips in these e-mails to minimize your spending and direct any extra income toward paying off your debt or building your emergency fund. Next week, we’ll do a check-in on your credit score, so be on the lookout for Week 7!

—To read previous weeks of the plan, click below—

Week 1: Start Eradicating Your Debt

Week 2: Spend Less, Save More

Week 3: Make Your Credit Score Sparkle

Week 4: Ways to Generate Extra Income

Week 5: Getting Closer to Debt Free

Also, click on the button below if you’d like to try ReadyForZero, a free online tool for helping you get out of debt:

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