Budgeting money is rarely easy, but it’s especially difficult when you don’t have enough of it to even pay all of your bills. You might be between jobs or simply have a job that doesn’t pay well enough to address all of your expenses. Either way, it’s important to change how you spend your money when you’re so short on funds.
Follow these steps for effective money management when you’re seriously broke:
1. Be proactive. Don’t wait until the collection agencies start calling. They are relentless and aren’t known for being understanding. They only get paid when you pay them, so you can see where their priorities lie.
• Call your creditors as soon as you can see that you won’t be able to make a payment. You might be able to work out some sort of an extension or get reduced payments for a while.
2. Prioritize. Life is all about priorities. Look at how much money you have available and then prioritize your bills accordingly. Typically, your mortgage, basic utilities, insurance and food will come first. Credit cards are usually last on the list.
• Consider the consequences of not paying each bill and make a decision.
• Do this step after you’ve contacted your creditors. Your decisions might be different, depending on their responses. Now is the time to ruthlessly cut all your unnecessary expenses. Austerity has its time and place, and the time is now.
3. Cut back on your savings plan. This might be the one time to stop saving part of your paycheck. The expense and ramifications of not paying your bills might be too great to cut yourself even shorter to make your savings payment.
• You’ve always heard to pay yourself first, but sometimes that’s not appropriate.
4. Avoid relying on credit. When cash is short, it’s a common practice to start using credit cards to replace a paycheck. The cost of this money can be incredibly high, and this debt is difficult to eliminate later on. Don’t fall into the trap of viewing credit as a viable solution.
• Consider how much you’re normally able to save and then project how long it would take to pay off this new debt. You already have more debt than you can handle. It doesn’t make sense to add even more to the equation.
5. Create more income. If you don’t have a job, take anything you can get for the time being. If you do have a job, consider adding a second job or getting some overtime. If you have stuff lying around the house that you don’t need, it might be wise to sell it.
• The less you fall behind now, the easier it will be to catch up later.
6. Make a new budget. This might be the last thing you’re in the mood to do, but either your financial circumstances have changed or your current budget isn’t working. Both reasons suggest that a new budget is required. Take a look at your income and bills and make some smart choices. Remember that it’s all about prioritizing intelligently.
In stressful times like these, it’s easy to succumb to your anxiety and not take action, but understand that this course of action will only make your challenges greater in the future.
Take a deep breath and do everything you can to get yourself back on track financially. You’ll be surprised how much you can accomplish when you really focus your intention and energy on solutions.
Prioritize your bills, increase your income, and make a new budget. Things will be better before you know it.