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What to do when your budget has lost its stretch


En español | Chances are that your employer required you to review and update your employee benefits elections toward the end of the year during what is commonly referred to as the Open Enrollment period. The choices you made around things like healthcare or life insurance coverage typically go into effect the first of the year. But rising premiums combined with payroll taxes may be taking a big bite out of your paycheck. The question is: How much stretch can your budget take before it “snaps?” The good news is that with some fresh ideas, you can find a new fit.

You don’t need to be a math or accounting wizard to establish and follow a budget—but you do need to commit to planning, prioritizing and remaining disciplined.

The beginning of the year is a great time to review and adjust your budget to make sure that you cover your everyday expenses—such as rent or mortgage, food and transportation—without sacrificing saving toward your long-term financial goals. While the word “budget” can conjure up images of boring spreadsheets and deprivation, it doesn’t have to be your enemy. Yes, the process will take some time and effort, but it’s well worth it. Following a budget can give you more control over your finances and help you find ways to save money.

First, you need to know where your money goes

  • Look at your paycheck – Most people will see the usual tax deductions (federal, state/local, Social Security and Medicare). If you participate in your employer’s retirement plan, you may also see that deduction, along with other benefits like health insurance. What you take home in pay after deductions is the income part of your budget.
  • Identify your fixed expenses – What are the expenses that stay the same each month? These could include rent or mortgage, student loans and car payments.
  • Identify your flexible monthly expenses –Theseexpenses can vary by how much you use (e.g., electric, gas) or by how much you choose (going out to eat, buying clothes, going to concerts and movies, magazine subscriptions, gym memberships). It’s common not to have a full picture of the amount you spend on flexible choice items. Some experts suggest tracking where your flexible spending goes for a month, noting everything from your cups of take-out coffee to your lunchtime shopping and dining out.

Next, decide on your priorities

Flexible monthly expenses offer the best opportunity to find savings. You can control how often you eat out, or whether you really need that new outfit or not.

To handle higher costs in critical areas like insurance and healthcare, you’ll want to identify opportunities to save in your flexible expenses, where you have more control. To make saving and spending decisions that fit your circumstances and needs, start by deciding what flexible spending areas are most important to you. For some people, making a choice to eat out less might be a no-brainer. Others may decide to cancel subscriptions for magazines they never have time to read.

Then try on some budgeting “styles” to help you find the right fit

If you’re the kind of person who swears by spreadsheets, go for it. Some people track their spending via a pen and notebook, while others prefer budgeting apps on their tablets or smartphones. And some even like to put cash into envelopes to cover their weekely or monthly expenses for specific categories like groceries, gas, or entertainment—when the envelopes are empty, they’re done spending!

The right method is simply the one that’s right for you. Find a way to create and monitor your budget that you will actually use. Some budget software will have you fill in dozens of budget categories. You might be better off with broad categories, such as “food,” “fun” and “utilities.” It may take a few months of tracking to uncover your best areas to save, but it can make a real difference in your finances.

Before you start trimming your budget, remember that budgeting and saving isn’t about depriving yourself. You work hard for your money and it just makes sense to use it based on your own personal values.

Remember, finding ways to save money can be fun—seriously

Just about everyone who suggests ways to save tells you that giving up your daily latte can add up to big bucks. That may be true, but there are also lots of other ways to find savings in your daily expenses. Here are a few ideas to get you thinking about the possibilities.

We may live in the “now,” but don’t short-change your future

If you’re tempted to reduce your retirement plan contributions, or to pass on even participating in the plan, you may want to think again. Time is your friend. The sooner you start, the better prepared you could be.*

Save with your family

  • Try competitive saving – Challenge your spouse, kids and friends to find new, clever ways to save.
  • Clear your clutter – Sell things you no longer need or never use.
  • Use the “30-day rule” – Unless something you want to buy is critical to your or your family’s well-being, wait 30 days to see if you still want to make the purchase.
  • Think “free” – Many communities have options for free entertainment, from free museum days to movie screenings to parks to bike trails. Going out for fun doesn’t always mean having to spend money. Also, check with your employer or service providers like your bank for free passes or discounts. For example, Bank of America sponsors “Museums on Us,” giving customers monthly free entry to certain museums when you present your Bank of America or Merrill Lynch credit or debit card.
  • Buy used – Yard sales and thrift shops are great places to hunt for something your family needs.
  • Fight electricity “vampires” – Even when your electronics are turned off, they continue to draw power and run up your electric bill. Unplug them individually or use a power strip that allows you to turn off multiple items when leaving the house.
  • Revisit mobile phone and cable TV plans – Review your cell phone data and texting plans to see if you’re overbuying versus what you actually use. Ditto for checking your cable bills. You may be better off with an online streaming service for at-home entertainment.
  • Landline be gone – Do you still have a land line at home? If every member of your family is connected by cell phone, your land line may be redundant.
  • Get fit at home – Work out at home by streaming fitness classes online instead of buying a gym membership you may never use. Or, if you prefer going to the gym, see if your health plan gives you a break on the membership fee.

Save with your friends

  • Schedule a “style swap” – Get together with one friend or even a group to swap clothes and accessories you no longer use.
  • Have a Saturday “DIY spa day” at home – Light candles, lounge, try out recipes for natural masks and indulge in other spa activities—at a fraction of the cost.
  • Friendly dining – Set up a dinner club where you and your friends take turns inviting each other over for meals instead of going out.
  • Handmade is trendy – Get your friends and relatives on board to make holiday gifts instead of buying them—anything from your famous peppermint bark candy to a hand-knit scarf.

Learn more and take action

  • Visit for help on how to set a budget and stick to it.
  • Check out more money saving tips at
  • If your 401(k) is through Merrill Lynch, see how increasing your contributions may affect your take-home pay at Benefits OnLine® under “401(k) > Current Elections > Contribution Rates > Change Contribution Rate.”

* Investing in a 401(k) plan involves risk, including the possible loss of the principal value invested.