This is a guest post by Mike Piper from the Oblivious Investor. Mike packs a wealth of knowledge so I am sure you’ll enjoy his article.
Nobody anticipates being financially broke at any point in life. Unfortunately, our financial habits might lead us into this situation without our knowledge. This can be disastrous on many levels: it could lead to serious debt problems, loss of housing, debt collections, and even filing for bankruptcy.
However, running into financial problems is not the end of life. There is room for one to do a lifestyle appraisal and financial audit regarding their expenditure, savings and above all budgeting.
This article is a run-through about the do’s and don’ts of budgeting when you’re in a bad place financially.
Do a lifestyle audit
1. Revisit your entertainment habits
If you are already broke then it means that you can’t continue living the way you used to. It is imperative that you let go some costly habits. Entertainment is one of those.
This may mean cutting back on habitual drinking with buddies, going out for movies, going for ball games, etc. It is utterly impossible to start a budgeting program while financially broke and continue to spend money on entertainment.
You may limit entertainment to those things that don’t cost you anything, for example watching a game with friends or family at home.
2. Cut back on all your expenses
For a successful budgeting journey, you have to get to the point of running through your expenditure habits. Does your budget reflect on things that you really need at the moment? If it doesn’t then strike out the expenditures that you can do without.
3. Seek ways of reducing your utility bills
Monitor your utility bills and seek ways of reducing them. For instance, if you feel that you can cut back on the frequency of doing laundry, please do. If you can be switching off lights when you leave the room, please do.
4. Cut back on travel
Some people who love doing road trips do not realize how much of a toll it puts on gas expenditure. Even if you end up budgeting on travel, most road trips, for example, end up incurring a higher cost on gas than budgeted. Therefore, cut back on road trips or any form of travel you are currently involved in.
5. Pay attention your credit limit
Be honest with your credit habits. Monitor your credit balance and observe payment due dates. In a matter of fact, if you are in the habit of journaling begin to write on the side of a weekly or monthly sheet payment due dates. Improvise ways of getting alert notifications on due dates.
6. Prioritize your life goals
It is of utter importance to learn how to prioritize on life goals. Most big budget allocations are usually directed to where priorities are high. If you prioritize automobile, then most of your budgeting goes to acquiring cars that you don’t need. However, goals such as an education, or anything that might secure you a better job or job promotion should be prioritized by your budget.
7. Eat at home
It is understandable that eating outside is convenient, but at the same time it can be costly. To avoid spending more unnecessarily on restaurant food, learn to budget for groceries. Begin to cook and eat at home. It saves money in the long term.
Increase your income
1. Try to work smart not just hard
As people like to say, on’t work too hard,’ they are partly right. If you want to help your budgeting habit you work smart not just hard. For example, get a job that pays better to keep up with life’s demands. If one job can’t, then get a second job that is less tiring and leaves you room to rest. That way, you can keep up with important bills and develop a structured budgeting system. Without a stable income, it is hard to sustain a stable budget.
2. Look at your budget in light of income
When penning down a budget, look for ways that you could increase your income to cover for some aspect of the budget. It is no point trying to budget for items that leave you asking yourself, nd how I am going to pay for that?’
3. Track down paydays
Some people receive paychecks bi-weekly while others weekly. Keep track of paydays in a month to enable you to know when to take care of bills. At times when money comes in, it is tempting to spend on items that you hadn’t budgeted on.
Improve Your Credit habits
1. Avoid late fee payments
Since budgeting does go hand in hand with payment of bills, you cannot afford to make late fee payments. Late fee payments come with a late fee payment penalty. This penalty could range from $25 – $35 charges. These charges will definitely dent your budget significantly. This is because charges are a minus to your budget, they don’t add any value to your finances.
2. Make at least minimum payment per month
Add credit card minimum payment on your budget. It counts! Paying minimum balance on your credit card is better than not making any payment at all. Making that payment helps to reduce the bill each time you do. Let it be reflected on your monthly budget.
3. Make it a goal to clear your credit card bills
Whether financially broke or not, you do not anticipate to live on credit forever. There has to be a time when you will be credit-free! Rather, let your budgeting anticipate a release from credit bills. Pursue financial freedom no matter how long it will take. Eventually you will pay off your credit card bills and open a new page of your financial life.
If you are going through a financial difficulty and are in low waters, realize that you can still keep a budget. A budget will help you order your life in crises so that you do not crush and sink financially.
Therefore, do a lifestyle audit and minimize on expenditures that you don’t need. Look for ways of increasing your income earnings. Watch your credit habits and project on being debt free someday. Lastly, save if you can, if not, it’s still okay. Be real to yourself!