10 ways to find the fat in your budget

You just have to be willing to look. Start with your fixed expenses, then review your discretionary costs. You don't have to give up the things you love to save money.

By Mary Rowland

Finding the fat in your budget doesn't sound sexy - until you visualize the new, svelte you.

In a matter of a couple of years, you can change your entire lifestyle to the better by simply adhering to a few budgetary constraints. Here are my top 10 ways to trim up your budget:

1. Focus on fixed expenses: Just because they're "fixed," doesn't mean they're not negotiable. Many items are fixed only in that they come out of your paycheck every month or you write checks for them automatically -- like rent and life insurance. So start at the top. Each budget item deserves a full airing.
2. Rent or mortgage: Your home is your castle. But can you afford the one you have? Moving is not something you're going to do tomorrow. But if your castle is eating up more than 25% of your income, start making long-term plans. Add extra money to pay down your mortgage. Think about moving to a cheaper home or apartment. Tax law provides an incentive to trade down: $500,000 in tax-free capital gains on a home, no matter what your age.
3. Utilities: Turn down the heat and air conditioning. Analyze your phone needs. Do you need so many lines? Is your cell phone essential?
4. Insurance: If your term life insurance policy is five or more years old, you're in for a pleasant surprise. Term rates have been heading straight down over that period. You can almost certainly get a better rate. Increase the deductibles on your auto and homeowner's policies, too, to save money, and drop collision insurance if your car is paid for. Don't skip disability insurance, though. If you can't work due to a disability, you could jeopardize everything without insurance.
5. Groceries: Think about the foods that are really pleasurable to you. Don't cut corners there. But how about bottled water? Is there any difference between the brand for $1.99 and the one for $3.99? Do you really enjoy the prepared foods you buy? Could you make something fresh and simple -- and cheaper?
6. Clothing: What can we say? The biggest enemy of a clothing budget is impulse. You need a strategy. Make a list of what you need. Shop from your list. Buy the best you can afford. Think about all the stuff you have hanging in your closet.
7. Transportation: This item can eat up 50% of a budget. Don't tell yourself you're going to stop visiting your girlfriend or significant other on the weekends. But take a hard look at where you can save. Set a budget for transportation. Negotiate for bargain airfares. Cars are better made and last much longer than they used to. Get one you like. Take good care of it. And keep it two years longer. Or three. Walk instead of taking a cab.
8. Household and babysitting help: It's tough cutting corners here. If you've found a good caretaker for your children, don't cut his or her pay. Supportive people to help in your business and home can make your life run much more smoothly.
9. Credit: This one has lots of opportunities for reductions. Pick up two months' worth of credit-card bills and total up the interest you paid. If you pay off your credit cards, you will save that much every month.
10. Taxes: Contribute to your 401(k) and make use of health-care and dependent-care spending accounts at work.

Of course, you must focus on discretionary spending as well. The key, however, is to choose something that makes your life better -- that enriches it rather than diminishes it. For example, consider the pat advice to jot down everything you spend in a notebook. How tedious!

But try turning it around. Every time you decide to forgo a purchase, you put that money in your savings bank. You skip a latte, that's $3. You walk instead of taking the bus or subway, $1.50. You pack your own lunch, $10.

So look at discretionary expenses to see what you can do here. Think of positive lifestyle changes. Vacations, too, can be thrilling without being costly if you do some research and plan a trip that allows you to explore and further an interest. "There are lots of ways to economize that have nothing to do with Dacyzyn-like asceticism and that may actually enrich your lives," says Mark Hiatt, referring to Amy Dacyzyn, publisher of the Tightwad Gazette and one of the leaders of the Simple Living movement.

And Mark's right. You can find the fat in your budget. It just takes a little creativity and willingness on your part.