Boost savings with temporary budget cuts

Go extreme in the short term to create a financial safety net

By Erica Sandberg

Opening Credits

Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com. Ask a question. 'Opening Credits' stories

Dear Opening Credits,
I want to quit my job in five to six months so I can focus on finding a new career. My goal is to save at least $5,000. So far I have $1,000. My problem is that I don't make enough and live beyond my means. Do you have any suggestions on how to budget myself so I can actually quit my job and not work for a few months while I find another job? I don't want to rely on my credit cards, even though I have them. Thanks! -- Nancy 

Instead, prepare. I'm all for you squirreling away $5,000 to have as "just in case" money. Maybe your current position isn't as secure as you'd like, which means that having extra cash in the bank will protect you in case of sudden unemployment.

To reach that monitory goal, your first step is to develop a budget based on your current habits. You admit to overspending, but do you know exactly how much money you're wasting on unnecessary items and expenses? Find out by listing how much you have coming in and going out today. Be super comprehensive -- include everything from rent to holiday cards.

After that, subtract the total from your monthly income and see where you stand. You'll use these numbers as your baseline for the second step, which is to create a temporary dream budget: a full-on, blow-out effort that will help you hit your target within the desired time frame. It will require short-term, drastic changes to the way you've been spending and saving money. To accumulate the remaining $4,000 in five months, you'll need to set aside $800 or $666 to do so in six.

Start streamlining your expenditures. Think hard about what you can live without for a while. For example, you might want to eliminate all dining out (including lunches and coffees), trips to the movies, new clothes and cable TV. Be hard on yourself. Remember that it's only temporary. You'll be surprised by how low you can go when you're truly committed. You may also consider working a second part-time position or putting in some overtime hours to bring even more cash in.

Now, on to you quitting your job so you can concentrate on finding another: Don't do it, Nance. Yes, looking for employment is time-consuming, but hiring managers want to see initiative. Most will value you more if you're still working.

In the meantime, I also urge you to get copies of your credit reports so you can see what's being reported about you before a future employer does. Most are checking these reports to see what type of borrower you are. Credit reports can give employers a more complete picture of your character and level of responsibility. Many reports contain errors, however, so you have a few good months to clear up anything that seems wrong.

When you have those security funds safely tucked away and have begun your new career, go ahead and let the budget belt out a bit. Celebrate with a caramel frappe and see the latest blockbuster! 

See related: Making a budget? Break down the 'Big 4' expenses first, The first step in any budget: monitoring spending, Over your head in debt? 5 extreme budgeting ideas, 6 myths about credit report checks by employers

Erica Sandberg's articles and insight are featured in such publications as the Wall Street Journal, Pregnancy, Babytalk, Redbook, Bank Investment Consultant, Prosper.com, MSNMoney.com, and Smartmoney.com. An active television and radio commentator, Erica is the credit and money management expert for San Francisco’s KRON-TV, a frequent guest on Forbes Video Network, Fox Business News, Businessweek-TV, and all Bay Area networks. Prior to launching her own reporting and consulting business, she was affiliated with Consumer Credit Counseling Services of San Francisco where she counseled individuals, conducted educational workshops, and led the media relations department. Erica is a member of the Society of American Business Editors and Writers, and on the advisory committee for Project Money.

Send your question to Erica.

Published: August 31, 2011

	Three most recent Opening Credits stories: 2 ways to start building a credit history – You want your first credit card, but no bank will give you one without an established credit history. How do you go about proving you're a good credit risk? ... When it's OK to get a second credit card – You've been faithful to paying on time with your first credit card, but the limit is low. How do you know when it's a good time to get a second credit card? ... Know where you stand before you apply for new credit – To know what kind of credit card you can qualify for, you first need to know your credit score and pull your credit reports ...

	CreditCards.com's newsletter Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!