The other day I posted about the importance of creating a budget, especially after a major financial melt down. I organized the methods to do so and included worksheets to help a person get started. The next logical step after forming a budget is to figure out how to reduce some of your expenses and/or increase your income.

Most often when I hear someone complaining about not having enough money, they immediately blame their income for their financial woes. Usually they say something to the effect of, “If only I made X amount more, things would be easier.” But most people can live on their income comfortably, they just need to make some adjustments to their expenses.

Ways to Reduce Your Expenses

The first thing to look at in a budget is your fixed expenses, such as rent or mortgage payments, utilities, insurance, and groceries. Is there any way to reduce those? I’ve listed some strategies below which may or not be effective depending on your current carriers and where you live, but it’s a good place to start:

• Land line telephones - Do you still have a land line? Do you need one? If you find you do need a land land for business purposes or your cell phone reception isn’t great, call your phone company and ask them if they have any special rates they can apply to your current plan. I do this a couple of times a year and save about $10 – $20 monthly on my bill.
• Utilities (gas/water/electricity) – Minimize your utility bill by reducing your usage, it’s as simple as that. Some people like to use Kill a Watt to figure out how many watts they’re using and then reduce as needed. I currently have a battery back-up connected to my computers and printer and recently found out my laser printer is an energy hog. Now, I keep the printer off until I need to print.
• Insurance – Can you increase your deductible comfortably to reduce your premium? If you have a savings account that could cover the deductible, you might save enough money by increasing your deductible on your auto insurance or home owners insurance and save hundreds of dollars annually. I was able to save $150 annually on my auto insurance by increasing my deductible to $1,000 and by switching carriers.
• Groceries – Coupons aren’t what they used to be, you don’t need to clip and cut as much as your mom used to. Today,  you can print out coupons for items you need. Penny from the Saved Quarter also just wrote a fantastic post over at Money Cone about how to Never Pay Full Price.  Also, by just purchasing items when they’re on sale, you can save 10% or more off your grocery bill.
• Rent/Mortgage – It never hurts to ask your landlord if they could reduce your rent. If this doesn’t work, you could always begin looking into less expensive areas or cheaper neighborhoods. Another option for both renters and homeowners is to rent out a spare room or an area of your home (however, be aware that subletting is usually not allowed in a rental agreement.) As for mortgage expenses, there are many refinancing options out there. Refinancing isn’t an entirely free option, but it may work for you if you intend on living in your home for a while.

Once you’ve given your “fixed” expense the once over, it’s time to tackle all of the other, more flexible expenses. Flexible expenses can be anything from eating out and everyday habits to cable television and vacations.

• Eating Out – This is a category that is easily reduced. Depending on how much money you need to reign in, you can reduce your take-out expenses as easily as just ordering water at a meal (saving anywhere between $3 – $15 or more) to sharing a dinner with your spouse or significant other. This year I’ve limited my budget to a fixed amount which allows me to still enjoy eating out occasionally.
• Everyday Habits – Habits can add up quickly, especially if they are highly addictive. Obviously the best advice is to quit a highly addictive habit. But if you just aren’t ready yet, find the cheapest items possible in your neighborhood. Another option is to set a limit. I’ve recently given myself a $50 monthly budget for my Starbucks habit. Once that money runs out, I have to wait until the next month.
• Cable Television – Many people say that this is a luxury item and I’d have to agree. But if you must have cable, sign up for a bundled package, which is usually offered at a lower price, or reduce your subscription. Of course if your budget just can’t afford this luxury, then ditch it.
• Vacations – Everyone needs some time off and some adventure. Vacations offer this escape, but not at the expense of going into debt. Some alternatives include staying closer to home, reducing the amount of time from a week or more down to a few days or a weekend, camping or choosing a less expensive option, or planning a vacation far enough in advance allowing you to save for that trip.

These are some possible options for living comfortably within a budget. Next, I’ll cover increasing your income to pad your budget.

Have you reduced your expenses this year? Which expenses do you find easiest to reduce?

This past year, I’ve made some good headway towards my 2010 goals, mainly with paying down debt and increasing my credit score. Yet I’ve found that one of my primary goals, increase my savings, got lost throughout the year. The biggest reason this goal failed was that I didn’t set specific enough mini-goals with strategies to accomplish them. I’ll be breaking down my goals in parts with a wrap-up article scheduled as a guest post at another site later in January (I’ll share that link then).

Breaking down goals into bite-sized chunks seems to work well, at least for me. So for my first 2011 goal, increase my savings, I’ll structure it to make it more manageable and make myself accountable.

• Boost my savings accounts (there are a total of 3 of them)

1. Label my savings accounts accordingly: Big-Purchases, Wealth Building, Emergency Fund
2. Automate my savings amounts so it’s less likely I’ll spend the money. The amounts are as follows: $400/month into the big-purchase fund, $270/month into the wealth building fund, and $80/month into my emergency fund. This increases my monthly savings by $200. It also assumes that I’ll be saving a little over 13% of my income providing my income remains stable (that seems to be my biggest hurdle).
3. Create quarterly goals for each account – I need this goal mainly because my income is erratic: By March 31st I should have increased my big-purchase fund by $1,200, wealth building fund by $810, and emergency fund by $240.

To make this plan work, I’ll be posting the next 4 parts of this year’s goals throughout the next couple of weeks. The biggest factor for increasing my savings account is to find out where in my monthly budget I can scrounge up that extra $200. I know it’s there; at least that’s what my Quickbooks reports are saying. I recently renamed my three major accounts, thanks to my husband’s input, and may need to switch the monthly savings amounts around a bit. But the total amount saved each month will hopefully remain the same. Stay tuned for the specific strategies that are going to help me meet this primary goal.

What goals are you looking to accomplish this year? Do you have a strategy to accomplish them?

This guest post was written by Henry Truc from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

For most homeowners, paying down their mortgage loan is akin to fighting off the plague, but the dream of one day owning their home in full keeps them going. Unless you’re flush with cash, buying a house usually means taking on a sizable amount of mortgage debt, and with that, forking over a fortune in interest payments.

Conventional wisdom suggests that owning your home outright is the smarter financial strategy. You don’t owe lenders anything, you save money on interest payments and you’re one major step closer to financial independence.

That said, there are some disadvantages to owning 100 percent of your home equity that should be considered.

Disadvantages of Owning Your Home in Full

Though it’s debatable whether or not there is such a thing as good debt, paying off your mortgage in full does reduce certain opportunities for better use of your money. Home loan debt isn’t necessarily a bad thing and here are a few reasons why:

• Tax Deductions: One of the most popular reasons for maintaining mortgage debt is the tax advantages that you enjoy on interest payments. It doesn’t necessarily make sense on its own because owing money just to save money on interest defeats any economic purpose. It does, however, effectively reduce the cost of that debt.
• Greater Financial Flexibility: Instead of having no cash in the bank and a mortgage paid in full, it may be a good idea to tap into that equity just to ensure that you have some access to cash if an emergency arises. If you pour every dollar into paying down your mortgage and don’t have anything left over for home repairs or one-off incidents, you could be positioning yourself in a tough spot to handle any costs of unforeseen events.
• Cheaper Debt: If you can get a good mortgage rate, chances are it’s multiple times less than your credit card, personal loan or auto loan interest rate. Consolidating your debts with a HELOC or home loan refinance can provide you some debt relief and help you save money on interest payments. Plus, mortgage interest payments are tax deductible, unlike credit cards or other personal loans.
• Property Value: Since your property value isn’t affected by your mortgage balance, you can put your equity to better use than just having it sit around idly by, waiting for you to sell your house. You may want to consider taking out a loan against your home for value-added investments like remodeling your home or adding another bedroom that will increase its market value.
• Return On Investments: By the same token, you can probably do better with your home equity than having it sit around earning a zero percent return. Depending on your risk tolerance and the potential return on investment, you may be able to outpace a low fixed mortgage rate. Granted, no investment is guaranteed and you’d be hard pressed to find a CD rate that trumps your mortgage rate. So for practical purposes, putting your home equity at risk to pursue any investment may not be a shrewd idea.

Keep in mind that these options should only be considered if you own a majority of your home equity or own your property outright. Mortgage debt is still debt. Whether you owe a balance on your first mortgage, are refinancing to consolidate other debt with higher interest rates or using it to fund a home improvement project, you’re still taking out debt on your home. Before agreeing to any home loan, use a mortgage calculator to ensure that you can afford the monthly payments first.

Advantages of Home Equity

Owning your home, whether outright or just a majority of the equity, has undeniable advantages. The more equity you own in your home, the more stable your financial situation may be. The peace of mind and stability of not having to worry about meeting mortgage payments is hard to put a price on.

You shouldn’t consider taking on more mortgage debt against a home you have little or no equity in. In addition, if you are fortunate enough to be in a financial situation where you can own your home outright, be debt free and have a surplus of savings to invest wisely, you may not need to access your home equity at all. The key, as always, is to find the right balance that fits your financial strategy and maximizes the efficiency of your money.

Do you think it’s better to own your home outright or to owe a small mortgage balance?

• Selling the American Dream
• Who are the real “Joneses”?
• Rent vs. Buy; The Guilt, the Guilt

A couple of days ago I mentioned a comment I overhead. The one about how “everybody” is having to short sale their homes so “everybody’s” credit will be affected by the housing market. I also mentioned at the very end of the post (if anyone actually read to the very end) how I predicted 4 years ago that the housing market wouldn’t keep rising. My main reason for this prediction was that the houses in my area were selling for astronomical prices. Prices that didn’t match salaries. I knew that something wasn’t right. When a couple grosses $75,000 but is able to purchase a house for $550,000 there’s something fishy going on. (That’s over 7 times their income!)

However, our mortgage broker friends tried to convince us that prices would keep rising because there were all these new kinds of loans available for buyers that would make the monthly affordable. Still, I didn’t buy it. Though the monthly was affordable, as little as I knew about finances and real estate, the payment wasn’t even covering the interest.

Now my initial prediction wasn’t that the market was going to tank (though secretly I sort of hoped it would as someone sitting on the sidelines realizing I couldn’t afford a house. -No harm meant to those in this situation – I just wanted to purchase an affordable house.) I thought it would level off for many, many years until salaries caught up with the tremendous housing prices.

Now that I’ve seen the housing market crash and the outcomes thus far, I have a few new predictions to make. Just to protect my ass-ets; I’m not a financial analyst, genius, true psychic or real estate agent. Just a very realistic, hard-working person who is still renting!

• The housing market will continue to scrape along the bottom for at least another 18 months.
• Some areas that weren’t hit as hard will do just fine and may see a market more similar to a “historic norm”. Others, like the Southwest will see even more foreclosures.
• The government will try again to boost home ownership by offering incentives, perhaps in the form of taxes or some other incentives in conjunction with banks, within the next 18 months.
• The housing market will not be the industry to kick start our economy. (If I were a real psychic, I could predict what will!)

Obviously none of these predictions require Mensa abilities. They are just realistic statements given the current facts. I don’t want to predict farther than a couple of years, since I do think that the market will eventually stabilize and get back to a more normal flow. Well, I guess I can say that this is my prediction for 5-years out – a more normal housing cycle (smaller increases and decreases over time. Click here for a historical housing graph – it appears that an 8-9% increase over 20 years is “normal”.) I don’t think we’ll see this roller coaster housing market again for a very long time; it left too many people with an ill-taste in their mouth.

Do you think my predictions are out of whack? Do you have any predictions about the housing market? What pattern did you see in your area that signaled a “red flag”?

Lemmings Falling Off a Cliff - by Eric Allie

I’ve been battling bronchitis for the last two weeks and haven’t been my peppy self. Hopefully this new dose of antibiotics I’m taking will kick its butt. However, I’m still dragging myself into work….of course that might be my problem. But I overheard the most irresponsible comment today at lunch, and I just had to post on it.

“Their accountant told them that everybody’s credit will be effected by the housing market since so many people are walking away from their homes and that they’ll be in the same boat as everyone else. So, they might as well short sale their house. They haven’t paid their mortgage in 8 months.”

This was a comment I heard of others discussing buying and selling their homes. One lady made this comment, quite lightly, about her son (I think) with the impression that it was fine since “everybody else was doing it.” She even went on to say that [her son] had a good job and could afford the mortgage payments, but because their property was no longer worth what they purchased it for, it was in their best interest to short sale it.

I also know someone very close to me that has decided to “strategically” default because they are no longer happy with the price they paid for their home. They hemmed and hawed over the decision. And, since a mortgage broker wouldn’t talk to them until they defaulted, they decided to take that initial step and default. I don’t know if they will eventually follow through or not; they are under the impression that they’ll be able to buy another house in a couple of years for half the price. (Oh yeah! Let’s reward irresponsibility! Oh, wait. That’s me being snarky.) Once they find out how long it will take to repair their credit, they may decide otherwise.

In my opinion, this sounds like the exact reason we’re in this mortgage mess and one of the reasons our economy is so pitiful. It’s the “everybody else is doing it” syndrome. It’s hard for me to believe that walking away from a home is a good thing. Especially if the owner can afford the payments!

What do you think? Is this just fine and dandy? Should defaulting homeowners suffer any consequences? They knew when they signed the dotted line how much the total cost of the house/townhouse/condo was. Are they predicting a future where they’ll be able to easily land a brand new house as easily as they did the first time around?

P.S. I predicted 4 years ago that home prices wouldn’t keep going up. I’m not a psychic, I’m just a realist….tune in later for my psychic predictions of where this market is going.