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How to Cut Back on Spending & Right-Size Your Budget in 2021

Depending on which industry you work in, 2020 could have been a phenomenal year or a complete disaster.  Regardless, it is now time to refocus on how you can streamline your personal and business budget for a strong 2021.  Below are four ideas to help your family, your business, and your community thrive in the new year.

1. Track Your Cash Flow: There are numerous online applications (as well as Excel spreadsheets) that can help individuals, families, and business owners get a handle on their cash inflows and outflows.  Most of us have only a vague idea of how much money we spend in certain categories, and getting a better handle on what spending is truly necessary versus that which is discretionary is the most important step to controlling your budget.  For example, you and your family need to eat, but what is the percentage of food you are preparing versus ordering out?  Further, when you go to the grocery store, are all the items you purchase being eaten or are you throwing away certain quantities of food?  Be inquisitive (and not hard on yourself) as we head into 2021 and I bet you will be able to find areas to reduce spending and increase savings.

To help your family’s budget, we encourage you to use this Excel spreadsheet as a starting point.  For business owners, we encourage you to visit this blog post with helpful worksheets and download the UPDATED Cash Flow Analysis Template.

2. Conduct an Activities and Services Analysis: One idea for tracking your cash flow, whether you are an individual/family or business owner, is to create an activities and services analysis.  For individuals and families, we encourage you to list all the activities and/or services you perform/provide and what it costs you in dollars and time spent.  Then, ask yourself the following three questions: 1) Is this activity or service necessary (e.g., utilities or rent) or discretionary (e.g., renting a movie)?, 2) Is this activity or service recurring or non-recurring?, and 3) Does this activity or service line up with one of my short or long-term goals?.  For each activity or service you listed, give it a score of 1 if it is necessary, is recurring, and/or lines up with one of your short-term or long-term goals.  If the service is discretionary, is non-recurring, and/or does not line up with one of your goals, it gets a score of 0.  Finally, add up the three scores for each activity and service you listed to get an idea of which ones are core to your personal financial well-being (higher scores are better).  While there are inevitable trade-offs (e.g., you may need to decompress by renting a movie), having an objective ranking for your spending can help you make decisions about how to allocate your money.  

For business owners, we encourage you to visit this blog post with helpful worksheets and download the Activities and Services Analysis Template.  This template provides instructions for you and your team to pinpoint your strengths so you can focus on growing them.  

3. Make a Plan for Government Relief: Whether you are an individual/family that will receive a stimulus check, or a business owner considering a first or second Paycheck Protection Program Loan (PPPL), have a plan for how you will use this money, how you will track the use, and what the goal is for this money.  For example, if you are a family who will receive stimulus checks for the parents and children, will this money be used to cover rent or utilities, or does your municipality offer relief?  Could these funds be better used to build up an emergency reserve in case no additional relief is passed in 2021?  

Similarly, a business owner must use at least 60% of their PPPL funds for payroll in order to qualify for full loan forgiveness, but will you provide additional bonuses with these funds to frontline employees who put themselves at risk every day?  How will you increase your signage and PPE to protect your workers and customers so that you can continue to operate?  

4. Think About Where You Spend Your Dollars: While it is tempting to continue to make purchases from large companies such as Amazon, consider the impact your spending could have by using a local, independent business.  Oftentimes, these businesses can be competitive on price and they usually offer better service, higher quality products, and reinvest their dollars in your community – through employing your neighbors, donating/sponsoring local charities, youth sports teams, and events, and spending their money with other businesses in your community.  If you want your dollars to have the most impact on the quality of life in your community, our suggestion is to buy local.

While the beginning of 2021 does not look much different from 2020, there are reasons to be optimistic, and one of the best strategies to help create optimism in your house and/or in your business is to be proactive and focus on the most impactful activities that are in your control.  

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