Budgeting When You’re Broke

Fact checked by Ariel CourageReviewed by Margaret JamesFact checked by Ariel CourageReviewed by Margaret James

Suffering from a lack of cash? It may be because you don’t follow a budget that reflects your earnings.

Smart budgeting prevents eviction, credit card debt and ruined credit scores. It’s never too late to achieve your financial goals. Get started now with these 10 tips to make your financial life less stressful.

Key Takeaways

• Ask companies to extend your deadlines for your bills.
• See which bills can be paid first. Be strategic about the order.
• Eliminate unnecessary expenses, if at all possible.
• Try out a new budget for a month, and adjust as needed.

1. Avoid Immediate Disasters

Don’t be afraid to request bill extensions or payment plans. These requests are often granted.

For instance, suppose that your rent is $650 and you’re $200 short. Your bundled phone bill and cable bill is $60, your electric bill is $100 and your cell phone bill is $40. If these bill payments are postponed until your next paycheck, you can pay your rent now.

2. Review Credit Card Payments and Due Dates

If you’re only making the minimum payments on your credit card(s), you may have a subpar credit score. Avoiding credit card payments will only worsen your debt.

For example, suppose that your minimum payment on a $1,000 balance is $40. You fail to pay $40 on time, so you are charged a $35 late fee. In addition, your interest on future charges is charged at the default rate of 28%. Now your credit card is even more difficult to pay off. Before you know it, you have an overwhelming number of late fees and missed payments.

3. Prioritizing Bills

Go over all of your bills to see what must be paid first. Then set up a payment schedule based on your paydays. You’ll want to leave yourself some catch-up time if some of your bills are already late. If this is the case, call the bill companies to see how much you can pay now to get back on track toward positive status. Tell them you are catching up. And be honest about what you can afford to pay.

4. Ignore the 10% Savings Rule, for Now

Stashing 10% of your income into your savings account is daunting when you’re living paycheck to paycheck. Balance your budget before starting incremental savings. It doesn’t make sense to have $100 in a savings plan if you are fending off debt collectors. Your savings will have to wait until you can find stability in your finances.

5. Review Your Past Month’s Spending

Online banking and budgeting software and apps help you categorize spending so you can make adjustments. For instance, with online banking, you can categorize your money for expenses, such as rent, food and utilities. Observe what you spend money on, and be intentional about making adjustments.

6. Negotiate Credit Card Interest Rates

If you have good credit, call your credit card companies and ask for an interest rate reduction. If you don’t ask, you won’t know. It’s unlikely that credit card companies are going to initiate a reduction on their own.

7. Eliminate Unnecessary Expenses

Do you need to cut back on coffee? Or going to the movies? Or do you often have spoiled groceries? All cutbacks should start with items you wouldn’t miss, such as switching car insurance companies to get a cheaper rate or reducing your fresh food purchases if you find food spoiling before you can eat it. Eating out is even more costly, so examine how much and how often you really need to do this. Using an expense tracking app is a quick and convenient way to keep track of just where you’re spending each day and each month.

8. Journal Your New Budget for One Month

Once you’ve gone through the first eight steps, monitor your progress by journaling for one month. You can do this by noting everything you spend in a notebook. Or you could use budgeting apps on your phone or try financial software. How you track your money isn’t as important as how much you are tracking. Focus on ensuring that every cent is tracked by dividing your expenses into categories, such as rent, food, clothing and utilities.

9. Adjust Spending as Needed

If, after journaling for one month, you’ve found your budget isn’t where it needs it be, get prepared to make changes. Look at how much you are over budget and decide where you can cut. Don’t rule out items that are viewed as basics, such as groceries, utilities or rent. Cooking from scratch can eliminate the cost of pre-packaged foods, and opting for generic brands over brand names will equal big savings on a cart of groceries. Utilities can be reduced by turning off lights when you leave the room. You may be able to negotiate better rent the next time your lease is up, or you could try to move to a less expensive place.

10. Seek Out New Sources of Income

If your current budget doesn’t balance or you’re barely scraping by, you may need to look at working overtime, getting a second job, or possibly getting a new, higher-paying job. Often there is work that pays more, but the nature of the work is unattractive. You may need to decide if it’s better to be unhappy at work or unhappy with debt.

What Is a Budget?

A budget is a way to spend your income. There are various rules of thumb that suggest how you spend your budget. It’s typically on a monthly basis.

What is the 50 / 30 / 20 rule?

The 50 / 30 / 20 rule is a budget that suggests you spend half of your paycheck on needs, 30% of it on wants, and 20% on savings goals.

How Do You Do a 70 / 20 / 10 Budget?

With a 70 / 20 / 10 budget, you allocate 70% of your paycheck towards necessities and non-necessities (discretionary items), 20% towards savings, and 10% towards debts or donations.

The Bottom Line

When you’re short on cash, a better budget is often the best tool for correcting the situation. Start small, and give these 10 tips a try.

Read the original article on Investopedia.