I’d like to introduce Laurie – from The Frugal Farmer as our new staff writer! She’ll be sharing her insight and wisdom with us every Thursday from now on.
Are you feeling a call to get out of debt, but you’re in so deep you’re not sure where to start? You may have all of the dreams and aspirations in the world to get your debt paid off, but how do you begin when there’s not even money to make ends meet?
It may be a challenge to get out of debt when you’re strapped for cash, but it can be done. You can make and follow a budget when you’re broke. Here’s how:
1. Assess your Situation
The thought of figuring out exactly where you’re at money-wise right now may seem overwhelming, but it really is a crucial first step. Now is the time to write down every asset and liability you have. For liabilities, write down whom you owe, how much you owe, the minimum payment and the interest rate you’re paying. For assets, write down who has your money, how much money they have, and what interest rate you’re earning. Also, write down exactly how much income you’ve got coming into your household. If you’re on a commission basis, average last year’s income, or use your base pay amount if you have one. Knowing exactly where you’re at financially is the first step to budgeting when you’re broke.
2. Make a Budget and Prioritize your Expenses
Now that you know how much you owe and how much you own, it’s time to figure out monthly expenses. Write down each monthly payment and what it’s for, and put them in order of priority: living expenses first, such as shelter, food, electricity. Bill payments such as to your Discover it® card, loans or medical bills second. Extras such as cell phones go in the third category, as do kids’ extracurricular activities, vacation plans, and entertainment money. Be honest with yourself as you’re making this list about what’s most important to pay as far as you and/or your family’s safety and well-being is concerned.
3. Cut Expenses
Time to get real here, and it’s not easy. If you’re trying to budget while broke, you don’t have room for extras. The clothing budget needs to be kept to a bare minimum, necessity-only clothing. Budget in a small – and I mean small – amount for entertainment, and look for cheap and free ways to entertain your family, such as the local library or a nearby beach. Assess your cell phone expenses: could you get by with a pay-as-you-go plan, Straight Talk byop, or no phone at all? It’s time to face the music here; if you’re really strapped for income and are having trouble paying your bills, it’s time to focus on your “needs” and not your “wants.” Take an honest look at your budget and make those tough decisions about what needs to go.
4. Make a Plan
And stick to it. Pay your bills according to priority, and let the rest be late if you truly have no other choice. And now’s the time to start looking at either increasing your income, or revisiting your expense list to look for more cuts. Can you get overtime hours at work? Pick up a second job? Look for online income opportunities? Can you sell your “stuff” on Ebay, Craigslist or at a garage sale? If you’re in a situation where you really are broke, and where it’s difficult to pay the bills on time, you need to make a plan that will allow for more income or less expenses so that everything due each month can be paid and paid on time. Waiting and paying late will only result in lots of late fees, meaning less money for you and/or your family each month.
Now is also the time to see if you can get lower interest rates on your credit cards, mortgage and loans, and higher earnings rates on any investments or savings you might have, while still minimizing risk. Do your homework and see how you can earn more money by reducing interest paid and increasing interest earned. Budgeting while you’re broke can be done. Yes, it takes some extra discipline, some creativity and the commitment to follow through, but you know it will be worth it when you reach the day where money isn’t tight anymore. Imagine that day, and keep it in your “dream” file as you work toward your goal of being debt-free.
Other than the items already listed, what is something you cut in order to live within your budget? If you do try to live within a budget, what are some challenges you face in sticking to it?
Photo courtesy of: Tax Credits