My dad was the best cash flow expert I knew. He would have money put into his retirement fund, get the company match, remove his contribution and make extra loan payments to get them paid early.
There was not enough money at the end of the month, so this was how he made things work for our family of six. Could we have spent less? Maybe. Could he have earned more? Don’t know. But I do know that sometimes you have to do the best you can with what you have to work with.
If your income doesn’t go quite far enough, you have some tough choices to make. Let’s look at how you can make decisions to pay Paul without robbing Peter.
Make sure the basics are covered
The first step in getting a handle on your bills is figuring out your priorities. Sure, all of your bills need to be paid, but in a pinch, there are some that are more important than others. At the top of that list are food and shelter.
In order to survive, you must eat. Along those same lines, in order for money to survive in your bank account you must establish a food budget (and stick to it). Creating a weekly menu and shopping with a list are the two biggest ways to tame your food spending. To make your dollars stretch even further, consider shopping at a low-priced grocer instead of the more popular supermarket chains. Aldi, for example, is known for having prices much lower than other grocery stores best sales prices — and that’s including coupons.
You also need a place to sleep, and while you could live with others (or sleep in your car if worse came to worse) those are both less than ideal situations. And let’s face it, there’s just something about having your own space, so be sure to allocate your resources towards covering your rent or mortgage as one of your top priorities.
Bring out the scissors, it’s cutting time!
Now that we have the basics covered let’s talk about cutting your non-essential costs.
Start by making a list of all your bills.
Do you have an expensive cable TV package? It’s probably time to get rid of it because right now, you can’t afford it. So sorry, but TV is a luxury.
Are your kids in a million after-school activities? I’m hate to be the bearer of bad news, but you’ll probably need to cut those too. Or the kids need to chip in to pay for their favorites.
When it comes to getting your finances back on track and digging yourself out of debt, the hardest part is making fundamental changes to the way your family operates. Sometimes that means forgoing entertainment, but it has to be done! If entertainment is going to the movies, then change it to a Redbox rental. You can still have fun, just find inexpensive fun.
Of course, you don’t have to blindside the family — instead consider holding a family meeting and getting input into what’s going to stay and what will be cut.
Once you’ve decided what non-essentials you’re eliminating from the budget, now it’s time to start tracking your spending to identify any additional cuts that could be made.
For the next month, I want you to write down what you’re spending everyday. There’s no doubt you’ll be surprised with the results.
Are you going to Starbucks every morning for your caffeine fix or ordering avocado toast on a regular basis? You’re easily spending upwards of $35 a week so that’s something else you can cut for sure.
Is date night costing you $50 a week? That’s at least $200 a month! Cut that too (or find a more economical alternative) because you can’t afford it. That doesn’t mean you can’t spend time together, it just means you have to be creative.
Tracking your spending allows you to identify both the obvious and not so obvious ways you’re spending your money and eliminate any unnecessary leaks.
Develop A New Budget
Now that you’ve made your cuts and sealed any money leaks, it’s time to establish a new budget. Start by adding in your basic necessities that we covered first: food and shelter, then work your way through the items that remained after making cuts to your non-essential spending.
Once you’ve done that, add in birthdays, holidays, and any other expenses that you expect to have within the next twelve months. You may want to categorize your budget items by how critical they are. For example:
A Items – must pay items such as food, rent, water, electricity, gasoline
B Items – really important items like credit cards, other bills, clothing
C Items – nice to have items like cable, eating out, entertainment, gifts, beauty, pets
Cut out your C items first. These are actually the hardest as they require discipline and a lifestyle change, but they have the biggest impact. Then cut your B items to the bone. A items will have to stay, but minimize them as much as possible.
Take the total and subtract it from your estimated take home pay. Is the number positive?
If not, go back and cut some more.
But Pam, there’s nothing else to cut!
Experience tells me that if someone is really focused on fixing their money problems, there are always additional items that can come off the budget. The problem is, few people are willing to endure that type of discomfort. But for argument’s sake, let’s say you aren’t able to make any additional cuts.
What then?
Earn More Money
There are two ways to balance a budget – spend less or earn more. Find a higher paying job, take on some overtime, start a side hustle. Heck, there are even places that you can take surveys or donate blood to earn a few extra bucks.
Who knows, what might start as a way to earn some extra money might lead you straight to the intersection of your passion and God given ability — which is where the real magic lies. Look for a side gig that is something you really enjoy. I just saw my niece and she has four jobs: babysitting, house cleaning, working at a clothing store, and crafting for others. She is doing things she loves and too busy to spend much money, so that’s a side benefit.
Now, make no mistake about it, doing everything that I’ve mentioned above is a lot of work. But the truth is, it takes effort and constant attention to where your money is going to dig yourself out of a financial hole.
And yes, it is often exhausting, but the alternative is worse.
It really comes down to how bad you want it. What are you willing to sacrifice to rid yourself of the stress and worry associated with not being able to cover your expenses each month? If it’s a short period of hard work and some discomfort, you’re in luck because before you know it you will be back on your feet having learned a lot about yourself in the process.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.
Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Posts represent the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third party comments.