Many people that end up with financial problems and living paycheck to paycheck actually make enough to support themselves but just make bad money decisions. And it's not one big decision that pushed them into dire straits, but a series of small poor decisions. Taking a family vacation when you're behind on your mortgage because you don't want to tell your kids you're having money problems is an example of one of the types of poor decisions we're talking about. This is a litle bigger bad choice, but everyday smaller choices can also chip away at your financial stability.
Here are some examples of poor spending choices that mess up your finances all month long:
- Eating out or having a standing pizza/Chinese night when you can't afford it
- Swiping your credit card with no regard for whether you can pay the balance in full
- Buying based on want rather than need
- Letting your kids dictate your spending and not being honest with them about limits
- Both spouses spending without communicating
#1 Acknowledge what you can't live without. That's the mortgage/rent, utilities, insurance, car note and any taxes. You also need your cell phone, but if your plan is too costly because you're financing your phone through AT&T or Verizon and they gave you a “free” phone (no phone is free – they charge you double the retail by making you pay outrageous monthly costs). You may need to ditch them, buy a used phone and go for a bargain pre-paid deal. Figure out how much these must-haves cost – just these – and total them up. If you're paid bi-weeekly, see how much it is per payroll and set up a special account. Transfer the amount into the account, don't touch it and pay the bills directly from it or arrange auto-deduct bill pay from them.
#2 What's left in your regular account is what you can spend or save. You should definitely be trying to save 10% but you may need to find a way to cut your core expenses by refinancing your house or car loan or reducing your insurance expenses. You absolutely must limit your spending to what's left over after you pay your core expenses. This is money that has to pay for your clothes, personal care, groceries, eating out, kids' school expenses, home repairs, auto repairs, medical co-pays and medications, pet expenses – everything! Also, if you've accumulated credit card debt, you need to be able to chip away at it so that means you need to be able to pay more than the minimum each month and NOT use your cards.
#3 Look for opportunities to save and earn. To dig yourself out of a mess that irresponsible spending has gotten you into, take opportunities that come to you and look for more. If someone offers to pick up the check for lunch or dinner, let them. If you get offered overtime at work, take it. If someone offers you money to house sit, take it. If you can get the use of a friend or relative's spare room or lake house for a free vacay, say yes. Clip coupons. Only order pizza if it's cheap, cheap, cheap. Eat leftovers. Have Thanksgiving at someone else's house to save money. Consider a part-time job for your or your spouse or look for online work even if adds just a few hundred extra dollars into your monthly budget. That's enough to help you pay off credit cards, pay for a car repair or build up some savings.
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