Budgeting is so easy to do when you have plenty of income to cover all of your expenses and are able to set money aside for things like savings and entertainment. But what if you don’t have enough money to cover all of your categories? What if you’ve had a large, unexpected expense that put a big dent in your income or you’re just trying to get by living paycheck-to-paycheck? What if you unexpectedly lost your job and won’t have enough income for a few weeks or a few months? Budgeting suddenly becomes very difficult and it can even send you into panic mode. In these situations, the traditional rules don’t apply.
Some people get stuck in this crisis mode for months or even years, never getting a handle on their income and expenses. This is especially likely if your expenses each month add up to more than your income, causing you to “float” a bill to the next month and keeping you from being able to catch up. This can become a vicious cycle, because it often leads to high-interest debt. In the worst-case scenario, it can lead to payday loans or other predatory financial products. If you can relate, now is the time to take control of your money so you can finally break free of this stressful way of living.
Look Back, then Forward
The first thing you need to do is figure out how you got into this situation. Understanding what happened will help you to avoid it happening again in the future. A crisis like this rarely sneaks up on you; it’s usually a result of decisions and circumstances over a long period of time. That doesn’t mean that there wasn’t something unexpected, but it does mean that you might have missed opportunities to prepare for the unexpected, which is a critical component of a healthy budget.
But look, we get it. Life happens and “crisis mode” is no time to place blame or feel guilty. All you can control now is the future, so put your energy into creating the best future possible. Yes, it’s going to take some self-discipline to learn new habits, but you can do it.
Take it one day at a time
Until you get back in control of your financial situation, make it a habit to check in daily with your budget and finances. Always know exactly how much you have, how much income is on its way and when it will arrive, and when your bills are due. Make clear and informed decisions about what you can and can’t spend every day.
Until things improve, only spend when absolutely necessary. That means avoiding temptations like going out to happy hour, random shopping trips, and going to the movies. Pause any monthly services that you don’t need, like subscription boxes, cable, and Netflix. This step is crucial.
Plan for Upcoming Bills
Know what responsibilities you have by making a list of your upcoming bills. What will you need to pay next week and the week after? Add up all of the expenses you’ll have between now and the next time you get paid.
Then, once you get paid and you pay all the bills, is there anything left? If you’ll be overdrawn again, find out if you can get an extension on any of your bills, enter into a payment plan, or change your payment date. This will help you avoid having too many expenses due all at the same time.
If you’ll still be in the negative, it’s time to start figuring out how to cut expenses. Can you reduce your cell phone plan or get rid of cable? Find more budget friendly recipes. Better yet, look for ways to earn extra income like a part-time job or starting a side business.
What about credit card debt? If that’s a big part of your problem, you should contact us for free budget and credit counseling. Our Debt Management Program may be able to help you lower your monthly payments and interest rates on your credit card debt. These changes can help you stay afloat each month and free up some much needed “cushion” in your budget. You can also reach out to creditors directly, to ask about hardship programs.
But if you have quite a few creditors and are struggling with multiple bills, you might find that the Debt Management Program is the better, simpler solution.
It won’t happen overnight, but you’ll soon start digging yourself out of this feeling of panic and start to feel like you can breathe again. Once you get there, create a budget that works with your income, allowing you a little left over each paycheck. Then start building an emergency fund so you have a backup if you ever need it again.
But for now, just take it one day at a time, and remember that credit counseling can be a viable solution.