The 7 Keys To Budgeting When You’re Broke

In today’s tough economy having a strict budget and managing your money is essential. Way too many people are living with budgets that do not reflect their financial situation they are overspending on categories they shouldn’t and then are left with not enough to spend on areas they should.

A recent study by Nielsen on Smartphone ownership showed that in the 18-24 and 25-34 age brackets earning less than $15K per year had a 56% and 43% smartphone ownership. In addition those same age brackets making between $15K and $35K had a 53% and 58% smartphone ownership rate. On top of that nearly 80% in these brackets had purchased a new smartphone within the last 6 months.

Budget Tips to Avoid Urgent Disasters

These are those cash crunch moments when you just don’t have enough funds to cover all your expenses.  Don’t be afraid to ask for a temporary extension to buy you a little more time. I remember once when I had 4 bills coming out of one paycheck and then the next paycheck didn’t have any; I didn’t have enough money to make all my payments on this one check. I asked for an extension and was able to balance out my bills and have 2 coming out of each paycheck.  In my experience having worked for billing departments in the past the sooner you call to make an arrangement the more freedom and flexibility the customer service rep. will have to work with you.  For example if you wait until after your utility bill (electric/gas/water) is passed due and they have already sent out your notices and then call it is very likely they won’t be able to set up an extension and you could find yourself with your essential utilities cut off.  When you can see a train wreck coming you need to jump in front of it avoid it from ever happening.

Prioritise Your Bills

If you are in a real where you don’t have enough money to pay for everything then you need to take some time and review your bills and prioritise them. This is one of the most important things you need to do and yet so many people don’t put their bills in the right order. Take that survey from Nielsen for example expenses like that are not the first priority when you are struggling financially. Darla has a financial hierarchy of needs that she always goes over with her clients and you should put that same practice to work with your bills. Your money needs to be allocated in this order :

Financial Hierarchy

Survival

• Shelter
• Food
• Essential Utilities (Electricity/Gas/Water)

Earning Support

• Car or Transportation
• Gasoline
• Clothes for Work

Debt Management

• Credit Cards
• Loans

Asset Protection

• Insurances
• Savings

Growth

• Investing
• Retirement Plans

Entertainment

• Movies
• Games
• Non-essential Utilities (Cable/Satellite/Telephone)
• Clothes
• Subscriptions
• Restaurants
• Other Misc. Expenses

Of course you need to be realistic and reasonable in each of these categories, when times are tough you need to limit each category to what is absolutely necessary and nothing more.

Payments & Due Dates

Keep on top of your debt payments and due dates – I learned this lesson the hard way with my minimum payment fiasco many years ago! The reality is if all you are doing is paying your minimum payments then you are one step away from financial disaster but not making your payments can lead to immediate catastrophe.  Skipping a payment will lead to late fees and skyrocketing interest on your debt, you’ll only be digging yourself deeper and deeper into a whole. One think you can try is to contact your lender and perhaps move your due dates so that it can fall on a better time of the month in regard to your paychecks.

Cut Out Everything You Don’t Need

The Financial Hierarchy is your starting point for allocating your money but you need to make sure that you are no wasting on any category.  Start with items you wouldn’t really miss. Do you really need that Starbucks? Going to the movies? Going out to eat? Premium TV package? Smartphone? These are all areas you can look into cutting back on your spending.

Track Your Spending

What gets measured gets managed is something Darla always tells me and it is so true. Having feedback and information about where you are spending your money will significantly help you to find problem areas and start figuring out what you need to do. I had some friends – a family of 3 – who were spending $1700 a month on eating out; they didn’t even know it! Starbucks or McDonalds in the morning each on their way to work, grabbing lunch at the café, snacks from the vending machine or gas station, going out to dinner; all these things add up and sometimes we’re all a little blind to it and don’t connect the dots. He only found out about how much money they were spending when he signed up for a free Mint.com account and was able to see the family’s expenses all in one place. That is why tracking is essential !

Adjust As Needed

After you have been tracking for at least a month take a good look at your numbers and see what is happening. Be ready for some shocks and commit to yourself that you will make the needed cuts.  There should be no sacred cows when it comes to these cuts – essentials like groceries and utilities should be looked at as well. Buying fresh unprocessed produce is much cheaper than pre-packaged foods, cooking a soup or a pasta dish filled with vegetables can feed a family for days on only a few dollars. You can also save on utilities beyond just making sure all the lights are off in the rooms you are not in; lowering the temperature on your heater or raising on you’re A/C as well as lowering the temperature setting on your water heater will all save money.

Search For New Sources Of Income

Lastly you will need to search for alternative ways of making extra money, if overtime is offered at your work then jump on it and take what you can. You may have to get creative in your search for multiple income streams.

• Find a second job
• Sell extra household items on eBay or Craigslist
• Search for opportunities to provide freelance work on places like Elance, oDesk, freelancer.com
• Start an internet business – A free resource to get you started
  

When cash is tight living on a strictly tracked budget that adheres to the Financial Hierarchy while doing everything you can to earn extra income is your best hope to getting through these tough times.