How do you decide what to trim from your budget?

Getty Images/Budget-trimming tipsGetty Images/Budget-trimming tipsWith the economy recovering slowly but steadily -- but mostly slowly -- many people are still trying to figure out ways to tighten their belts a bit more.

Obviously, the first things you need to do are track your household expenses, figure out your budget, and then identify and eliminate the luxuries. But what if you've already stopped eating out, jettisoned the spa membership, and put your credit cards on ice? What's left to trim from your budget -- and how?

We've identified a few key areas, and three ways -- simple, moderate, and drastic -- to trim each.

1. Housing:
If your housing payments eat up 25 percent of your budget or more, it's time to find a way to reign them in.

  • Simple: If your credit score is good and you're home isn't underwater, consider refinancing while rates are still relatively low. With the economy on the mend, interest rates will be on the rise, but there's still time to lock in a low rate for the next 15 to 30 years.
  • Moderate: Consider renting out a room in your home. If you have an in-law apartment, or if you work nights and want someone around while you're at the office, a tenant working the opposite schedule may be easier to adjust to than a bonafide roommate.
  • Drastic: Downsize to a less expensive community or a smaller home. If you don't want to (or can't) sell your home, consider renting it out while you rent a smaller place for yourself.
2. Utilities: You may be able to trim your budget a bit more by reducing some of your bills.
  • Simple: Turn on your clothes washer or dishwasher only when you have a full load. Hang curtains to help control the temperature inside your home. Bump the thermostat up a couple of degrees in the summer, and grab a sweater so you can keep the heat down in the winter. Anca Novacovici, founder of Washington D.C.-based Eco-Coach, has some great tips for making your home more eco-friendly -- and wallet-friendly, too.
  • Moderate: Do you need both a cell phone and a land line? Can you bundle your phone service in with your TV and Internet in order to save a bit on the bill? Look into other ways to lower your heating bill (insulate the attic to keep warm air in the house where it belongs), reign in your cooling costs in the summer months (try using fans in conjunction with air conditioning), or use less gas when you drive (properly maintaining your car can make a difference).
  • Drastic: Give up the clothes dryer and find time to hang your clothes out to dry. Do without air conditioning and seek out air-conditioned public spaces, like the library, when the dog days of summer roll around. Sell your car and buy something more basic (in cash, so you can eliminate the monthly car payment and lower your insurance payments at the same time). Avoid driving whenever possible -- carpool, use public transportation, ride your bike, or walk instead.
3. Food: You can still eat well while spending less at the supermarket.
  • Simple: Plan your meals in advance, cook from scratch, and stock your pantry properly in order to get the most for your grocery money.
  • Moderate: Yes, you can really save money with coupons -- and you can save even more if you take the time to combine them with supermarket sales. Kathy Spencer of How To Shop For Free has some great tips on how to do this.
  • Drastic: Cross produce off your list permanently by planting your own garden. Urban farming is all the rage -- it's amazing what you can cultivate on less than a quarter acre, or even in pots on your balcony. Don't feel like digging in the dirt? You can slash your food bills by eliminating meat from your diet.
4. Entertainment: It's amazing how those little things add up. But what seem to be necessities when you're living large can be easy to jettison when times are tough. Let's assume you've already stopped dropping money on nights out on the town. How can you trim the bills while having fun at home?
  • Simple: Do you really need every single premium cable channel? How about keeping your favorites and letting the rest go? If you're going out to eat out as a treat, consider splitting an entree or going out for dessert and coffee only. Host a movie marathon at home instead of heading to the multiplex, or have a pot-luck dinner with the neighbors when you feel like socializing.
  • Moderate:If you need high-speed Internet access in order to work from home, downgrading to dial-up doesn't really make sense. But what about keeping the Internet access and getting rid of satellite TV or digital cable? With movie services like Netflix and Blockbuster that deliver DVDs to your door, and websites like YouTube and Hulu that stream TV shows directly to your computer, you might not even miss having cable.
  • Drastic: Cancel all of your subscriptions -- movies, magazines, newspapers, TV -- and visit your local library more often. Plug in to your community, and find out what free events are going on around town.
Once you know how much money is already going out, figure out exactly how much is coming in regularly, and create your budget, keeping in mind that it doesn't have to be set in stone. In my last post, I mentioned one way to prioritize your bills if you can't pay them all in a given month; it's worth repeating, so here it is again, courtesy of The Zen Organizer, Regina Leeds, and her new book, "One Year to an Organized Financial Life":

1. Pay Uncle Sam first. "The IRS can make your life miserable like few other creditors can," she writes.
2. Pay the people who can repossess your stuff next. "Your mortgage company and the auto dealer come next in order of importance," Leeds says. "You obviously don't want to come home to find your furniture on the street or your vehicle towed."
3. Seek the lowest cost. Pay down the credit card with the highest interest rate first, while making at least the minimum payment on any others.
4. Consider the little guy. If you have to choose between paying a big box store or a mom-and-pop shop, consider that the smaller creditor may need your money in order to pay his own bills.