If you feel your finances are out of control, no matter what you try, you must do something drastic. Your situation may call for extreme budgeting.
Sometimes you wonder how much money you could save and everything you could do if you didn't spend so much money on unnecessary things. Maybe you only buy designer clothes, order Uber Eats five times per week, buy the most expensive brands in the supermarket or drive everywhere even if you could walk to that place.
Now, don't get me wrong, if you earn enough money to do all those things, save money and keep your finances organized, go for it and enjoy your life if those things bring you happiness. However, you need to change if your shopping behavior makes you overspend every month, creating debt and no savings.
I believe you should try extreme budgeting and see the other side of the coin on how to live an entire month with only the essential and fundamental things.
What Is The Extreme Budgeting?
The extreme budgeting rule is the practice of purchasing only what is strictly necessary, not spending a dollar on anything extra. Of course, you also look for the cheapest option (usually white labels) for what you need to buy.
As you can see in the graphic above, it's difficult to tell percentages of how much money you can save (I am not saying it should be half/half like the picture suggests). You should reduce all your expenses and save as much as you can.
So, you know you want to eliminate anything unnecessary from your budget. Anything that is a Need expense (all the costs you can't avoid or would be difficult to live without) you need to keep it. Some examples are paying rent or mortgage, medicine, food on the table, and essential bills (water, gas, electricity, internet, phone).
Some examples of things you need to cut during the extreme budgeting method because they are not necessary are entertainment subscriptions (Netflix, Amazon), eating out, going to the cinema, buying clothes (white labels if you need them are permitted), holidays, etc. None of these expenses have space in this budgeting style.
Now, I don't believe this is a budgeting method you should do in the long term because you should enjoy life. So I wouldn't personally do it for more than two months (and one month will be already tricky). Instead, use extreme budgeting for a short period, like saving more money that month or covering an emergency bill that appeared from nowhere. You can check some other budgeting methods for a longer-term period.
Who Is The Extreme Budgeting Ideal For?
I would say that extreme budgeting is ideal for anyone who wants to reach a specific goal in a short amount of time. If you are very focused on eliminating unnecessaries expenses from your budget and have a financial plan in mind, you can manage to save a good amount of money. A few examples:
- You give up dining out for three months to save money for your wedding.
- You don't buy any clothes or trash food for the next two months to save money and go on holiday.
- You will bike to work or use public transport for one month to save money on fuel to buy Christmas gifts.
- You cancel the gym membership for three months to work out at home and use that money to create an emergency fund.
It's also a great budgeting technique for anyone who wants to control their finances and life because they know they are only spending money on what is essential and have a financial goal and a plan in place.
If you are budgeting for the first time, I wouldn't advise this budgeting method. You probably not want to budget ever again in your life. It can be a very oppressive budgeting style.
How To Do Extreme Budgeting?
I would use the Zero-based principle of allocating a goal to every single dollar you earn during extreme budgeting. It makes it easier to save money that way.
To me, extreme budgeting consists of four main components:
- Making a list of your needs
- Cutting your wants
- Finding cheaper alternatives
- Seeking out free things
The needs category is every single expense you can't avoid or would be difficult to live without. It's essential to be accurate because you can live without an entertainment subscription (can't you live without Netflix or Amazon Prime for one or two months? Yes, you can).
A few examples of what is considered to be part of the needs category:
- Utility Bills (Water, Gas, Electricity)
- Any Loans
- Household Products
Remember to only add what is essential for you to live healthily (a decent dwelling, good food, etc.).
The wants category is everything that is not essential in your life but you have joy consuming. Before checking some examples, don't forget that this is extreme budgeting, so you must cut these expenses entirely.
A few examples of what is supposed to be part of the wants category:
- Dining Out
- Entertainment Subscriptions
- Memberships (gyms, professional organizations)
It may be difficult for many people to cut everything in this category, but remember that it's a sacrifice you make for one or two months to ensure you achieve the financial goal you have proposed. I guarantee in the long term that, many expenses in this category you will not repeat for a long time because you realize you don't need them.
The Cheaper Alternatives
Extreme budgeting is all about cutting expenses and finding cheaper alternatives. So check the white labels or purchase the most affordable option for all the products in the supermarket. You will save a lot of money.
It's not only finding cheaper alternatives when shopping but also reducing bills.
- What is the best time of the day to put the washing machine working?
- Why not reduce your mobile data for a cheaper plan?
- How much will you save if you unplug all devices and only plug them in when you need them?
- If you purchase LED lights, how much will you save on electricity?
- How much will you save on the water bill if you take shorter showers?
- Do you need all those TV channels, or can you be on a cheaper plan?
- Do you need all those subscriptions and memberships you are paying?
The Free Things
When you do extreme budgeting, you don't need to be close to home to save money. You can walk in the parks, go to free concerts and free museums, and if you research, you will find free activities in your area for sure (even in New York).
Also, if you go out somewhere or visit a different place, pack some food and save that money. You can also walk to work if you don't live far or it's a viable option. If you work out in an expensive gym, start running outdoors.
How Do You Set Up The Extreme Budgeting?
If you decide you want to move forward with the extreme budgeting rule, here’s how you can set it up.
1 – Calculate Your After-tax Income
So, the first thing you want is to calculate your after-tax income and understand how much money you will receive every month. Some people receive the same payment every month, but for others, it can vary, which makes budgeting a lot more complicated (but not impossible). If you are a freelancer, calculate how much money you expect for the next month. Some people get paid weekly and some biweekly, so you must adjust your budget according to your situation.
You can use the free tool on the IRS website to help you determine how much income you can expect to receive and how much taxes you will pay. However, if you have any questions, it would be better to speak with a tax professional.
2 – Use The Extreme Budgeting Template/Spreadsheet
To keep you organized and have a more reasonable perspective of what you need to do, ensure you use the extreme budgeting template. It can be a spreadsheet that you print and use/fill online or an Excel sheet. Whatever makes your life easier, it’s what you should use. Don't forget your partner's income and expenses, and check the best personal budget categories for you. Learn how to make a budget in Excel.
3 – Make A List Of Your Monthly Expenses
This is where you will check your bank statements for the last month (or the previous three months to be more accurate) and see where you spend your money. Add anything you have spent money on, whether it was only $0.99 on a bagel or a $10 withdrawal from the ATM.
Ideally, you will add to your budget template any other expenses you think you will have for the current month or the next one. Be honest when adding your expenses to your budgeting template, and don't omit anything. Remember that you are only fooling yourself, not others.
4 – Cut All Expenses That Are Not Necessary
Now that you have a list of all your expenses from the past and expenses you think you will have for the current month or the following one, it's time to cut some. You need to cut any expenses that are not essential in your life, and you can survive without them. Remember that you need to be extreme with this budget method.
Check what brands you buy and find cheaper alternatives to them. Think about how you can reduce your essential bills and find free hobbies for your days off. Also, compare prices and choose the cheaper and better option.
5 – Set Up Financial Goals & Evaluate
In my opinion, no budgeting is worthing if you don’t have the motivation to keep you moving forward and achieve what you purposed at the beginning of each month.
You need to set some financial goals for each month, or even for an entire year or five years. In my opinion, this budget works very well with short-term financial goals.
You didn’t set your financial goals initially because you didn’t know your income and expenses. Now you can set realistic financial goals because you know your monetary situation.
Finally, you will need to evaluate and adjust your personal budget at two different moments. First, you will check your spreadsheet and see if you need to make any adjustments to ensure you respect the extreme budgeting. The second time you need to evaluate it’s at the end of each month and see what went right and wrong and make more adjustments.
Extreme Budgeting Tips
Now, let me give you extreme budgeting tips or what some people call extreme budgeting 101.
Extreme Budgeting General Tips
Before I tell you about the food budget tips, let me show you some general tips you can adopt to make extreme budgeting work:
- Avoid driving. Instead, walk, cycle, or use public transport to save money.
- Prepare home meals and take them to work.
- Laundry at the best energy rate hours.
- Reduce the duration of your showers to less than five minutes (if not less).
- Move with your parents (I did this when launching my business)
- Cut your own hair.
- Don't spend any money at least three days per week.
It's all about thinking of ways to save money or reduce what you consume. You will be surprised by how much money you can save with these tips, even if it's only for one month.
Extreme Food Budget Tips
When it comes to extreme budgeting food tips, you need to think about them when shopping for food and planning your meals. Keep in mind that your goal is to eat healthy using as little money as possible.
Extreme Budget Grocery Shopping
Grocery shopping can be hard on an extreme budget (check the best places to shop on a budget) because you need to make the best decisions possible and choose the cheaper alternatives. It would help you if you have a shopping list and don't buy anything that is not on the list (I am someone that always purchases chocolate even if it isn't on my list, so stay strong).
Here are a few other pieces of advice:
- Go for generic brands (white labels) since they are usually cheap.
- Don't buy anything that is unhealthy.
- Buy season products
- Buy items on sale.
- Check out the daily, weekly, and monthly deals.
- Buy in bulk thinking in the future
- Compare food between stores (go to five different supermarkets if necessary)
- Shop at farmer's markets.
- Use your own reusable bags
Another easier way to control your money is to grab the calculator on your phone and keep adding what you put on your shopping car. Believe me. It helps to stick with the list and even make some further cuts.
Extreme Budgeting Meal Planning Tips
People tend to overcomplicate when preparing meals and blame not having time to keep ordering food, which is more expensive than cooking at home.
You can prepare some of the healthiest and best meals on an extreme budget. You just need to be creative.
Here are a few other pieces of advice:
- Cook from scratch.
- Cook meals that require only essential ingredients.
- Plan egg-centric meals.
- Eat vegetarian meals.
- Freeze the leftovers.
- Eat the same meal for lunch and dinner.
- Cook meals for more than one day.
When preparing meals on extreme budgeting, you want to use the cheaper ingredients but also reduce bills when using your cooker and oven (cook many meals at once).
Extreme Budgeting Examples
The average American earns approximately $51,480 gross per year in the USA, equivalent to $4,290 gross per month. So that’s the value I will use in my example.
Note: For your information, I have researched a lot about how much the average American pays for rent, bills, groceries, etc. However, it would help if you kept in mind that it varies significantly in each state. These examples are only for you to understand better how the 60/30/10 rule budget works.
The first example is for a single person who splits a house with someone that is not their partner and has no kids.
As you can check the example above, you start by making a list of all the expenses you have, and then you cut the ones that are not essential to your life. In the example, the budgeter saved almost $2,000 that month since his expenses passed from $4,078.99 to $2,130.
I would also make a detailed list of all the items you shop for and how much you spend on them monthly. Then check for cheaper options and purchase those. It gives you a lot of work, but you will also save loads of money. It's worth it if you are serious about extremely budgeting your money.
Don't forget to be mindful about reducing your essential bills like electricity, gas, and water, changing to a cheaper mobile and tv plan, etc.
Is Extreme Budgeting Good For You?
If you are looking to cut some expenses to reach some short-term goals, I would say extreme budgeting is good for you. It may be complicated in the first week, but you keep remembering you are doing this for a short amount of time, and it becomes feasible.
It can be tricky for some people to give up on some non-essential things for a couple of weeks, and that's why having financial goals in place is so important.
Try extreme budgeting for a couple of days, cutting some nonessentials like eating outs, cinema, and fuel. See how it goes, and then try it for a full month.
Michael launched Wealth of Geeks to make personal finance fun. He has worked in personal finance for over 20 years, helping families reduce taxes, increase their income, and save for retirement. Michael is passionate about personal finance, side hustles, and all things geeky.