One of the best things I did with my finances was to create what I call the Rock Bottom Budget. The simple concept behind the Rocket Bottom Budget (RBB) is to eliminate and reduce expenses until you don’t think it’s possible to lower your expenses any further.
In 2010 I had just moved to the Chicago area and my finances were a mess. I had credit card debt, student loans, a car loan, and a personal loan to my parents. Add all of that madness together and the number reached over $100,000 in debt.
Shortly upon my arrival, I was happy to receive a job offer, not a well-paying job but I was ready to leap at the opportunity for full-time employment.
The table was set, over $100,000 in debt and a low-paying job, I was ready to crawl in my bed and take a nap till it all went away. That’s not how life works and it’s certainly not how your finances work.
Over the last few years, I have eliminated every last cent of my debt. Yes, I am #DebtFree all thanks to the Rock Bottom Budget.
Happiness is a butterfly, which when pursued, is always just beyond your grasp, but which, if you will sit down quietly, may alight upon you. Nathaniel Hawthorne
One of the best moves I made financially was to sell my Mercedes Benz and the car loan that went along with it. This was one of my first big steps in eliminating one of my expenses.
Here are the numbers to show the difference this made in my very own budget.
The numbers are as real as the air we live and breathe. I will repeat this over and over again here at Even Steven Money, eliminating or reducing your car expenses could be one of the biggest savings in anyone’s budget.
Take this excerpt from the Wall Street Journal article for context:
If you’re driving 15,000 miles a year—not uncommon for an American worker—in a midsize sedan such as a Toyota Camry or Ford Fusion, you’ll spend more than $760 a month on average, or $9,150 a year, on gas, maintenance, tires, full-coverage insurance, license and registration costs, depreciation and finance charges.
Using my numbers of ~$600 was an understatement compared to the average American driver. I sold my Mercedes Benz in 2010 and with that, the fixed expense that most of us expect to have forever.
For simple math sake let’s take the full 5 years or 60 months at $600 per month, that number is $36,000!!!!
See what using the Rock Bottom Budget can do!
Many people look at their car and categorize this as a “need”. If you want to make a huge difference in your budget your car payment needs to completely removed as part of your Rock Bottom Budget.
I need my car for work, school, drive the kids, safety, etc
While it’s great to eliminate debts entirely, it’s also great for the RBB to reduce your fixed expense to a smaller amount.
If you have a $20,000 car, why not sell it and buy a $10,000 car? Have a $10,000 car; sell it for a $2,000 car.
By doing either one of the suggestions you are reducing your overall loan amount and taking the next steps to eliminate your payment.
Reducing your car in value will reduce your overall car expenses greatly. I understand not everyone can eliminate their car loan, but if you want your debt gone bad enough, you will find alternatives to reach your Rock Bottom Budget.
Now I chose to change my lifestyle immediately and rip the band-aid off with my expenses because I was so sick of living a life financially that I couldn’t afford.
The next step for me was eliminating my credit card debt. Back then I had thousands of dollars looming over my head. Some of this was from living beyond my means and some of this debt was from working part-time and living a full-time life.
With credit cards, one of the most important parts about eliminating debt is to change your behavior. It is one of the few debts that can actually increase while you are paying it off. In the band-aid approach to changing my behavior, I chose to cut up and throw away my credit cards.
Changing your behavior in regards to expenses is an ongoing battle that you and I will face over time repeatedly, let’s start with the band-aid approach and adjust accordingly.
When eliminating any expense with the Rock Bottom Budget, I highly suggest making a goal and making it a big goal. An example of setting a big goal came with my student loans, here is an excerpt from my article on Budgets are Sexy.
When you set your goal, set a goal that you WANT, not a goal that you think you can do – Go Big. Making $200 payments each month might be what you think you afford, but it is not setting you up to Go Big. Saying I want to pay off my student loans in 12 months – over $2,000/mo! – is Going Big.
Setting a goal tells you where you are today, and where you plan to go tomorrow. Without one, you are wandering the road of life with a backpack full of debt, and each step gets heavier and heavier with no end in sight.
The Rock Bottom Budget is all about making big changes, so why wouldn’t we make big goals to eliminate our expenses. Each debt that you can eliminate is a debt that you can say goodbye to forever.
Reading that has to make you feel great! Expenses that are gone forever bring you closer to your own RBB, but let’s remember not every expense can be eliminated entirely.
Eliminating each debt or minimum payment is the key to the Rock Bottom Budget. But there are some expenses that you simply cannot or choose not to eliminate, my cell phone would be a prime example for me.
Not long ago my cell phone bill was $80 per month. I was with Verizon and this was the basic plan needed to have an iPhone which included talk, text, and data.
I paid $80 every single month, that’s not even including if I used too many minutes, sent to many texts, or used too much data, all of which I had to pay extra for.
As I looked over all of my expenses, I thought that my budget had hit Rock Bottom, but when I read about a cellular service called Republic Wireless, I knew it was the next step in reducing one of my expenses.
I was able to buy a phone for approximately $300 and pay $10 per month plus tax to have unlimited calling and text, but also be able to use data when Wi-Fi was available.
Republic Wireless now has phones for much less than $300 and a starting price of $15 per month for the same plan I had when I started.
I hit my new Rock Bottom Budget, cutting my cell phone bill from $80 to $10, that’s a $70 difference and ⅛ of what my cell phone bill was with Verizon.
While my wireless preference is Republic Wireless, there are countless wireless programs that offer discounted rates.
I’m a believer that you can reduce any “fixed expense”. I use quotation marks because I think people assume that many of the items in their budgets are fixed expenses.
I could have assumed my cell phone bill was a fixed cost and grumbled about paying $80 month. Grumbling about paying $80 per month will not stop $80 from leaving your bank account every month.
Here a few other ways to reduce your cell phone bill. Call Verizon and ask for a cheaper phone plan, switch to a “new” concept like using your phone for calls and text instead of a data package, and research the competition for a lower price.
These are ways to reduce those “fixed expenses” and here are a few examples to take a look at in your budget:
There are limits to any budget. While we decided to eat out less and grocery shop more, this is one part of the budget that we feel comfortable not going any lower, this will happen and it’s a good thing.
There are things that you simply cannot give up and there are things that cannot be reduced any further. This could be your preference or it might not be physically possible.
For example, I reduced my eating out budget to $20 per week. I certainly could eliminate it all together, but I like to have some room in my budget for a coffee or lunch, that’s just my preference.
I’ve taken my stand and decided that I value getting out of the office for a coffee or having a Friday lunch with coworkers more than I do saving $20.
That doesn’t mean you should sit back and use this as an excuse every time something could be reduced from your Rock Bottom Budget.
The Rock Bottom Budget is meant to eliminate debt and reduce costs along the way.
Nobody wants to get out of debt so they can go get another car loan or add to their credit card debt. The Rock Bottom Budget is for the extraordinary.
When it all comes down to it, you have to decide how bad you really want it.
Making big changes to your budget can make all the difference. Challenging even your small budget items can have an impact. Using the Rock Bottom Budget has had such an impact on my finances; eliminate expenses and change your lifestyle. That’s the key to everything.
Did you read this article and think I want to work on creating my very own Rock Bottom Budget, but don’t know where to start?
The great thing about Even Steven Money is I am here to help on a one on one basis as a Money Coach.
If you are looking to take the next steps to pay off debt, choosing financial freedom, chasing your dreams, and pursuing your passions, check out my coaching page. Let’s talk about it.