Beating Broke

Personal Finance from the Broke Perspective

What to Do When You Have More Bills Than Income

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It can happen to the best of us—we have more bills than income.  Every person’s situation is unique.  Maybe you lost your job, or you had a medical emergency, or you just went through a divorce.  The situation doesn’t matter.  What matters is that you find yourself in a desperate position.  Rather than panicking or ignoring the problem, know that there are strategies to implement to get yourself out of this position.

More Bills Than Income

Steps to Take When You Have More Bills Than Income

The process of getting out of this situation isn’t quick, but finding your financial footing again can be done.

Write Down Your Financials

The first step is to take an honest account of where you are.  How much money do you have coming in?  How much debt do you have?  What are your monthly payments and bills?

Cut Ruthlessly

Now that you have your financials on paper, you need to cut ruthlessly.  What do you pay for monthly that you can slash from your budget?  Start first with subscriptions like DisneyPlus, Netflix, Amazon, etc.  You can get those services back once you no longer have more bills than income.

Next, look at categories you can’t eliminate but can reduce.  We all have to eat, but we don’t have to go to a restaurant to do so.  If you’re not already cooking all of your meals at home, now is the time to start.  Also, make a plan to shift the type of food that you’re eating so you can lower your grocery bill.  Now might be the time to eat some beans and rice and vegetarian soups.

Learn how to lower your electric bill.  Turn off appliances and devices that you’re not using at night.

Consider switching cell phone providers so you don’t have a high monthly cell phone bill.  You might want to move to a lower cost provider like Ting or Tello Mobile.

In short, cut or reduce everything you can.  Then, you’re on to the next step.

Prioritize Payments

More Bills than Income
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If there’s not enough money even after slashing your expenses, there’s not enough.  Once you write down your financials, list your bills in order of importance.  Think survival here.

Survival Expenses Should Always Be Paid First

Bills and expenses that you likely want to be sure you pay every month can include:

Food,

Clothing,

Utilities,

Housing,

Transportation

The most important goals right now are to feed and clothe yourself as well as keep the lights on (along with the heat or air conditioning) and maintain your house and car.  Without the latter two, keeping and getting yourself to work is very difficult.

Keep in mind, you’ll still want to be conservative in these categories.  You won’t be eating fancy meals and you won’t be buying designer clothes.  You’ll spend the minimum you need to get yourself fed and clothed.

Expenses to Pay with the Remaining Money

After you’ve done looking at your spending priorities, look at how much money you have left.  You may find that you have many more bills to go and only a little money left.  That’s okay.  You knew you were in this position, and now you’re writing it all out and making a plan.  This is empowering even if it feels terrifying.

Let’s say you have four debts remaining and you only have $250 leftover.  Spread that $250 between each of your remaining debts.  For instance, let’s say your four debts have these balances:

CC #1: $10,000

CC #2: $3,500

CC #3: $5,000

CC #4: $1,500

At this point, don’t pay attention to the minimum payment.  Instead, add up all the debt, in this case, $20,000, and figure out which percentage of debt each is.  For example, CC #1 represents 50% of the remaining debt, so you’ll give it 50% of your remaining money each month, $125.  CC #2 is 17.5% of your remaining debt, so it will get 17.5% of your remaining money–$43.75, and so on.

Negotiate Credit Card Rates

If you think your current financial situation is temporary, call your credit card company and ask them to reduce the amount of interest you’re paying.  By doing this, more of your monthly payment will go to principal, lowering the overall amount that you owe.  You’ll likely be successful with agents lowering your rate about 50% of the time.

Negotiate Monthly Payments

If you feel your financial situation may last longer than a few months, call your lenders and explain your situation.

Credit card companies have the power to reduce your monthly payment.  When you negotiate with them, they will ask you how much you can pay monthly.  Using the math that you did above, let them know exactly how much you can pay a month.  (You’ll tell credit card company #2 you can only pay $43.75 even if your monthly payment is $70.)  The credit card companies will likely lower your payment to what you can pay because you’re making a good faith effort to meet your obligations.

Remember to call your other lenders.  Your mortgage company may be able to work with you to reduce or temporarily suspend payments.  You can also apply for deferrals on your student loans.

The important advice is to call these companies early, before you fall significantly behind.  Call them while you still have good credit.

Find a Side Hustle

More Bills than Income
Photo by Garrhet Sampson on Unsplash

Reducing expenses is important when you have more bills than income, but the flip side is just as important.  Can you start a side hustle as a way to make extra money and boost your income?  I started freelance writing 10 years ago when our youngest was a baby.  Now, my freelance work contributes 25% of our monthly income.  Imagine adding an extra 10 or 20 percent to your current income?  How would that money help you improve your financial situation?

Final Thoughts

If you’re in the unfortunate position of having more bills than income, know that you’re not alone.  There are steps you can take to improve your financial situation and help you survive this current financial difficulty.  Most importantly, remember that this situation is temporary.  Things will get better.

Read More

How to Pay Down Your Credit Card Faster Even If You Don’t Have Extra Money

How to Feed Your Family on a Low Budget

How to Create a Zero-Based Budget in Excel

How to Survive Being Broke

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Many of us have been broke.  It’s not a fun place to be.  You may feel depressed and desperate, but recognizing that you won’t always be in this position is imperative.  There are steps you can take to live a more comfortable life financially.  Until then, here’s a primer on how to survive being broke.

How to Survive Being Broke

How to Survive Being Broke

If you’re broke, you must take care of your immediate needs first.

Short Term Action to Take

Maintain a Positive Attitude

Many people who are broke become depressed.  They don’t see any way out of their situation and can’t imagine a future where they’ll be in a better position.

To successfully beat being broke, you need a positive attitude.  Research stories of people who were broke and went on to become successful and much more comfortable financially such as Erin Brockovich (played by Julia Roberts in the movie Erin Brockovich) or Chris Gardner (played by Will Smith in the movie, The Pursuit of Happyness).

Remember that life can change quickly.  You may be broke now, but you likely won’t be in the same position in five years or even two years.

Live on Beans & Rice

How to Survive Being Broke
Photo by Paul Hanaoka on Unsplash

The next step is to trim your expenses as much as possible.  Since food is often the largest monthly expense behind rent, that’s the best place to start.  You may love to eat salmon and steak, but now is not the time to do so.  Now is the time to eat the proverbial beans and rice.  For instance, when my mom and dad were first married and broke, my mom would buy one pork chop, pound it flat, and then split it between the two of them.  Once they had two kids, she would buy two pork chops and pound them flat to make four servings.  Now is the time to stretch your food as much as possible and buy the least expensive food you can.

Choose Your Friends Carefully

What financial position are your friends in?  You’ll want to find friends who are mindful of their money and not spendthrifts.  When my husband and I were first married, we were broke.

Some of my coworkers invited us to go with them out to eat.  The other two couples were both financially comfortable, and they chose a Mexican restaurant.  To my dismay, there were no prices on the menu.  We ended up spending too much that night, even though we tried to make frugal choices.  It was just an expensive restaurant.  We couldn’t go out with my coworkers again because we couldn’t afford their lifestyle.

If you try to maintain friends who are in a better financial position than you, you may never become financially comfortable.

Entertain at Home

How to Survive Being Broke
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Just because you’re broke, you don’t have to give up your social life.  Instead, change the way that you socialize.  Instead of going to a bar or restaurant and spending a lot of money, invite friends to your home.  Have a potluck at your house or have a game night.  Once a month my parents used to have their friends over in the summer for a volleyball night.  Be creative.  You’ll find there are plenty of ways to socialize without spending a lot of money.

Find a Hobby That Pays

Sometimes when people are broke, they have a lot of time, but not much money.  If that’s your circumstance, find a hobby that pays.  For instance, my uncle started a small side business for athletes at his former high school.  He would comb through micro fiche to find all of the articles for a particular year about the high school football team.  He’d print these out and bind them all together and sell them to the athletes.  He made some money on the side, and the former athletes had a scrap book of all the old newspaper clippings from their glory days.

Other ideas might include gardening, crafting and selling the product on Etsy, doing genealogy research for someone, building web sites for others, etc.  You’re only limited by your imagination in what you can do.

Long Term

When you’re broke, you may immediately think just of the short-term, but you must also think of the long-term.  How will you get out of this situation so you’re not broke your entire life?

There are several important steps you should take.

Earn a Degree

Photo by Juan Ramos on Unsplash

If a degree would help you secure a better job, than look into taking college classes.  When you’re already broke, you may feel like you have you have no time or money to do so.  However, if you don’t take steps to improve your situation, you’ll remain broke for much of your life.

I had a friend, Becca, who was raising her niece and nephew.  Money was tight, but she prioritized her education.  She took one or two classes a semester, putting in much of her study time early in the morning or at night when the kids were asleep.  It took her many years to get her degree, but she did.  Now, she lives a comfortable, middle class life and has a professional job.

Learn about Finance

If you don’t already have a solid background on personal finance, now is the time to learn.  This doesn’t have to cost any money.  You can borrow books from the library, take free finance classes online, and read blogs.  Learn all you can about managing money.  I’m not just talking about ways to save money, but ways to build your emergency fund and invest so you don’t end up broke again once you get out of your current situation.

Final Thoughts

How to survive being broke is a challenge for many people.  However, the first step is a mental one.  Realize that you’re currently broke, but you won’t be broke for the rest of your life.  You can make both short-term and long-term changes to improve your life and vastly improve your financial situation.  Many, many other people have done so.  Learn about those people and take concrete action to improve your current situation.

How a Pay Cut Has Affected Our Finances

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The pandemic has hit many people financially.  While millions of people have lost their jobs, there are also millions who have taken a pay cut.  Our family is very grateful that my husband has both kept his job and been able to work from home the majority of the time.  However, he did experience a significant reduction in salary.

How a Pay Cut Has Affected Our Finances

How a Pay Cut Has Affected Our Finances

Essentially, my husband’s pay cut brought his salary back to where it was six years ago.  When we found out the pay cut was coming, we immediately took action.

Practice an Attitude of Gratitude

Before I even set to work altering our budget to adjust to the new income level, I practiced an attitude of gratitude.  Yes, having a pay cut will make managing our money a bit more difficult, but my husband still has a job.  That job, together with my freelance work, still provides enough money to support our family.  The job still provides us with health care benefits and money in our retirement accounts.

This mind set helped me start to tackle the new budget and think of it as a challenge rather than a struggle.  Even with less money coming in, we’re still in a good position.  That alone is much to be thankful for.

Eliminate Extras from the Budget

Next, I looked at the subscriptions that we have.  I had an eight dollar a month subscription to an exercise site.  Sure, it’s not much per month, but I really didn’t need that subscription.  I’ve found plenty of work outs for free on YouTube.

I also had a subscription to a foreign language app for another $7.99 a month.  I deleted that and instead signed up for Duolingo, which is free.

We had about six monthly subscriptions in our budget, and we cut about half of them.

Find Corners to Cut

After I eliminated the easy fat from the budget, I set to work finding corners to cut.

Reduce the Grocery Budget

How a Pay Cut Has Affected Our Finances
Photo by Maria Lin Kim on Unsplash

I had raised our grocery budget in March when it was hard to find groceries in the early days of the pandemic.  Now, I cut that back.  I also changed the meals that we eat.  Instead of having meat at every single dinner, I’ve instituted a two-night-a-week vegetarian meal.  For the other nights, I try to mostly pick meals where meat serves as a condiment rather than the main star.  For instance, we’ve enjoyed bean soup with one slice of bacon crumbled on top per bowl.  By doing this, we’ve found some new recipes we really enjoy.

Reduce Other Budget Categories

We used to have a travel fund line item in our budget.  That one is now gone.  Not only is it difficult to travel safely with the pandemic, but we simply don’t have the money to travel now.

Likewise, we had a spend category for my husband’s interests and mine as well as activities we did with the kids.  I didn’t want to eliminate that one entirely, but I eliminated it by about 75%.

Increase Some Budget Categories

As strange as it seems, while I was slashing budget categories, I also found a few that I thought prudent to increase.

Emergency Fund

Despite the budget cut, I still make emergency fund savings a priority.   Even though our money is tight, life still goes on.  Over the next few months, we will likely need a car repair.  We’ve already had an $800 home repair during the first few months of the pandemic.  We will likely need to see the doctor or buy medicine.

I want to continue to save for emergencies and recurring, irregular expenses.  If I slash those categories to make our budget a bit more comfortable, then when the expense pops up, we’ll have no way to pay it.  That would cause us to go into debt, which we both want to avoid at all costs.

Kids’ Allowance

This may sound strange, but I chose to increase our kids’ allowance.  We have always had our kids’ allowance directly tied to the chores that they do.  Since we’re home so much now thanks to the pandemic, I increased the number of chores that they do.  (Our house gets much messier when we are in it 24-7.)

How a Pay Cut Has Affected Our Finances

Why did I increase their allowance when money is tight?  Simple.  Now, they have their own money and their own budget.  For instance, my daughter wanted to buy some paints, a paint-by-number kit, and some yarn to keep herself busy with crafts.  She used to ask me for those items, but now that she has a larger allowance, she will pay for those items herself.  Now, I don’t have to be the bad guy saying we don’t have money for the items.  Instead, she (and our other kids) get to pick and choose what they want to buy and what is most important to them.  They’re in control, not me.

Ramp Up Other Work

As soon as we learned about his upcoming pay cut, I set about increasing my work.  My husband’s income provides about 80% our monthly income.  While increasing my work load won’t make up for the decrease in his salary, it does make up for a bit.  An increase in my work load makes the budget a little less restricting.

Find Other Safety Nets

I mentioned to our financial planner that my husband was getting a pay cut.  He let me know that for the year 2020 only, I could withdraw from our retirement account without facing the typical 10% penalty IF our pay was cut or we got COVID-19.

I don’t plan on using this option, but I do appreciate knowing that the option is available should we desperately need it.

Final Thoughts

How a pay cut has affected our finances is pretty dramatic.  However, we’re still financially sound.  We’ve taken the important steps to continue to live within our means and weather this storm.  Most of all, we’re grateful that he still has a job and that he has the flexibility to work from home.