ACCOUNTING FOR BUDGET SHORTFALL
Last week, I told you that if you were doing everything you could to get the budget to work, but you were “short” that we would talk about how to make up any shortages. I mentioned ideas last week that I’ll share again here:
- Cut back on dining out
- Scale back to basic cable or drop it all together and use your computer or an antenna
- Drop extra cell phone services
- Drop your home phone service all together
- Lower the thermostat and cover up with blankets (raise in the summer and use fans as they use less electricity)
- Keep appliances not being used unplugged as they still pull juice, even when not turned off
- Cease 401(k) or IRA contributions (only temporarily until you are out of debt)
If doing these still is leaving you short each month, the next thing to do is to try to work with your debtors. Make a phone call and see if you can reduce both the interest rate and/or the minimum monthly payment. The economy is bad and these companies are losing millions of dollars, so they are usually willing to help negotiatethe terms of your loan/debt to help make it easier on you and reduce the chances of default. Of course, you may meet with resistance from your companies, but it is worth a try at least.
If you still are short, you need to find a way to get some extra cash. Whether it be on-going or one time to pay off a debt to free up some income. For you, it means you are gong to deviate from the plan a little bit, but read on and do your envelope system and isntead of using the Emergecy Fund ideas to save your money, do that to help work out your budget kinks.
Cash is King!! I know I probably sound like a broken record, but it is just so true! I disagree with people who claim “but if I have cash, I spend it too easily.” For me, I find that because I use cash, I spend more wisely. When you have only $200 for groceries and you also know that your cash must last for 2 weeks, you really think twice before you buy. Of course, with couponing, you usually are able to save and spend less, which can help, but you still should always use cash.
The first thing to do is take a look at your budget. You should seriously consider using cash for the following items:
- Dining Out
- Hair Cuts/ Beauty
- Doctor Visits
- “BLOW” (which is your spend as you want – only if you can afford it)
- Doctor/Dentist Visits
You will notice that I didn’t include gasoline in my list. The reason I didn’t is that most people won’t buy too much fuel at the pump. You fill up and go about your way. You also don’t drive around and burn fuel or decide to fuel up because your neighbor did. This is a budgeted item, but not one where you might spend above your budget. Not only that, it is usually much more convenient to pay at the pump.
You can then either purchase an envelope system as sold by Dave Ramsey or you can pull out envelopes from your desk drawer and note the category on the outside. You will need to determine how much cash you need for your pay period, based upon your budget. For example, if you are paid every two weeks, take the total monthly grocery budgeted amount and divide it by 2, to figure out how much grocery cash you need.
Go through each category you plan on paying for in cash and determine the amount you need. Then, figure up how many of each denomination of bill you will need and include a breakdown for the teller. Go to the bank and withdraw that total amount in cash and divide it into each envelope. Confused? LOL! No problem – here is an example:
100 Dining Out
MONTHLY BUDGET DIVIDED FOR BI-WEEKLY PAY
50 Dining Out
BREAKDOWN FOR EACH BUDGETED ITEM
Groceries: 14 – $20 bills 1 – $10 bill
Clothing: 2 – $20 bills 1 – $10 bill
Blow: 2 – $20 bills 1 – $10 bill
Doctor: 1 – $20 bill 1 – $5 bill
Medicine: 1 – $1 bill 1 – $5 bill
Dining Out: 2 – $20 bills 1 – $10 bill
SHEET TO GIVE TO TELLER WITH YOUR CHECK FOR CASH BACK
$1 bills – 1
$5 bills – 2
$10 bills – 4
$20 bills – 21
Now that you have your cash in your envelopes, you will need to keep track of every. single. transaction. I am really not joking. Doing this can help you stay on track and you also have to account for everything you spend. So, when you spend $20.17 at the grocery store, make sure to deduct that from your total. You can jot it down on the outside of the envelope, or keep a paper inside with the cash for you to use to track it.
I am sure some one is reading this and thinking, “but I get rewards on my credit card, so we do that and pay it off every month.” You still are not in control of your money. It is still far to easy to over-charge above your budgeted amount and not realize it until the bill comes. In addition, it can be very tempting for people to pay only 1/2 or the minimum so you have more money.
However, most importantly, you are not learning self control. That is such a large part of this process. You are learning to control your wants and how to save to get the things you want in life.
You will quickly learn to love using cash and you will feel more in control of your finances. We’ve been doing this for more than 3 years and I can’t imagine NOT having cash in my purse. It is routine and it helps us always know, in a matter of minutes, how much money we have available for the things we need.
EMERGENCY FUND – STEP 1
Whew – we are ready to start our first “real” step towards financial independence!!! But of course, it figures. You are working hard, you are getting out of debt and BAM!!! ….. the furnace goes on the fritz. Of course, you are in debt, so you go further into debt to pay for it. This is one cycle that you will want to break immediately. Before you can begin to really pay off your debts, you need to be able to pay for emergencies that will come along. And trust me, they will.
That is Step 1 – $1000 Emergency Fund. I know that may sound like a lot, but you will be surprised at how quickly you can get there. It doesn’t make any sense to pay off debts to have something break and then go back into debt. You really want to be able to cover your emergencies without adding back to the debt you have already worked hard at eliminating. Here are ways to build up an emergency fund:
- Have a yard sale
- Sell items on Craigslist
- Get a part-time job at night
- If your budget has excess, use that to put into savings rather than paying towards debt
- Use your 2010 tax refund
When my husband and I were working on our plan, we actually did 4 of these 5 things — all except for the part time job. It was tough to part with things, but they were things we really didn’t need. And, to be honest, they were that – things. They weren’t required to make us happy. They were wants and not needs. We realized that it was much more important to have no debt than some of the things we were not really using, lying around the house, collecting dust.
Getting $1000 in the bank may take one person 1 month and another couple 6 months. There is NOT any deadline on achieving this goal. It just needs to be met before you can begin to really work on paying off your debts and move onto Week 4’s lesson – The Debt Snowball. Come back next week and learn how we are going to start to work on paying off those debts!
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)