6 Steps to managing your Money when you are broke.
Budgeting money is rarely easy, and this proves to be especially difficult when you don't have enough to even pay all of your bills at the end of the month. The reasons can vary: You might for example be out of the job market for medical reasons, waiting for a customer to pay you, or simply have a position that doesn't pay well enough to cover all of your expenses. Anyway, no matter what is at the root of the situation, it is important to change how you spend your money when you are so short on funds.
Follow these 6 steps for effective money management when you are seriously broke:
Don't wait until collection agencies start calling you. They are not known for being understanding. They only get paid when you pay your debts, and won't stop harassing and adding stress on you till you pay.
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. Burying your head in the sand like a strong Innocent will only add late fees, penalties and a mental pressure you certainly don't need!
Life is all about priorities. Look at how much money you have available and then prioritize your bills accordingly. This is when it pays to know what are your NEEDS and your WANTS. Prioritise the needs and deal with the wants later. Typically, your mortgage/rent, basic utilities and food will come first. Credit cards are usually last on the list. If you feel a bit at a loss here, or want a properly researched reference, you can refer to the Maslow pyramid and start from the bottom.
Consider the consequences of not paying each bill and make a decision. Do this step after you have contacted your creditors (as suggested above). Your decision might be different, depending on their responses.
Now is the time to ruthlessly cut all your unnecessary expenses. As much as I love the concept of Abundance, Frugality has its time and place, and the time is now!
If you worked with me on implementing saving habits, you know that I am a big fan of setting up an automatic transfer to a saving account on the day you get paid. The idea is to force you to build with as little effort as possible a reserve that can be used for emergencies. This might be the one time to stop saving part of your paycheck. The cost and ramifications of not paying your bills might be too great unless you know exactly what you are doing.
When cash is scarce, it is common to start using credit cards to replace a paycheck. Be careful :The cost can be incredibly high, and this debt is difficult to eliminate later on. Don't fall into the trap of viewing credit as money available. Consider how much you are normally able to save and then project how long it would take to realistically pay off this new debt. You already have more debt than you can handle. It doesn't make sense to add even more to it.
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. Just be clear with yourself that this is temporary and is not meant to last forever. We need you to activate the Warrior in you. As soon as you are out of the hole and your situation gets more stable. We can go back to a more sustainable workload and a proactive behavior.
If you have stuff lying around the house that you don't need, it might be wise to sell it. Why not get some quick money in, for something you don't need anyway? Remember : The less you fall behind now, the easier it will be to catch up later.
This might be the last thing you want to do, but either your financial circumstances have changed or your current budget is not working. Both reasons tell me that a new budget is required. I am happy to share some of the excel sheet I use with clients. Get in touch and I will show you how to use them.
In stressful times like these, it is easy to succumb to your anxiety and not take action, but understand that this will only make your challenges greater in the near future.
Take a deep breath when you feel some sort of saboteur is kicking in, and do everything you can to get yourself back on track financially. You will 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 and you will feel great about it!