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Living a Better Life Living Paycheck to Paycheck (Part 2)
In my last column we discussed the alarming news that the majority of Americans are living paycheck to paycheck; barely making ends meet. We hopefully agreed that more money from tax cuts would be nice, but what we really need is Better Budgeting, in every American household. Then we talked about the importance of setting up a budget and living it. * * * Now, let’s take a look at how a budget should work and see if we can get out of this ‘living paycheck to paycheck’ syndrome. And as it is with many big accomplishments in life, what you need is, a plan! Making a PlanAssess Income and Expenses – Write Out a Budget Whether you write your budget out on a ledger or sheet of notebook paper, or use one of our recommended software programs, just make sure your outgo does not exceed your income! If it does, continue working each month to make the numbers match up better, making changes to your income or lifestyle as best you can. Create a Schedule for Paying BillsSecond to sizing down our home 4 years ago, this has been the most helpful self-imposed detail for our own family budget. I keep each month broken down into our bi-weekly paychecks, and designate which paycheck pays which bills. When extra money comes in or when the bills are less than expected, I use those opportunities to get ahead. I adjust the budget and move bills from one paycheck to an earlier one, meaning I now basically have the money to pay all of our bills long before they are due. Reduce Debts This one’s a no-brainer, get those debts paid off the best you can, as quick as you can. One of the best ways to do this is to make a list of your debts and start paying off the smallest balance first, then the next smallest and so on. Each time you get a debt paid off take the money you would have paid on that and put it towards the next one you’re working on. And meanwhile, try your best not to accrue any more debt. Reduce Spending – Keep Track of Daily ExpendituresIf you’ve made a list of all your spending for the last 30 days as I suggested in Part 1, then you’re off to a great start. You should have a rough idea of how much you’re spending each month and what you’re spending it on. ake adjustments to your budget if needed or reduce your spending. If you’re still unsure where all your money is going or feel that it may fluctuate from month to month, keep a tracking list for 90 days and then figure the averages. See the example figure below.
To figure the average monthly spending for each item, take the total amount (in the example above this would be $100), and divide by 3. Thus Mary’s average spending for lunches will be approximately $33 per month and this is what she should budget for. Reduce Monthly Bills - Size Down if Necessary You never know, you may think you’ve cut every extra expense that can go, but there’s usually a few more expenses that can be cut. It may also help to think of these cut-backs as temporary, for they usually are. Ration Monthly Income – Save as Much as You CanWhen you create your budget, of course you’ll need to ration your monthly income to cover all of your expenses (housing, utilities, bills, doctor visits, gas, food, haircuts, clothing, etc…), but don’t forget to add a section for savings into your budget, based on your income. If you’re unable to save even $5-10 a month then make it a goal to start as soon as possible. Once you’re able to start building a savings account you can begin investing and earning interest on your money… instead of paying interest on your debts. (Be sure to pay off most of your debts first, especially those with high interest rates.) Increased Income If earning more income is an option for you then go for it. Just remember to have a plan for where that extra money is going to go because if you don’t, it could be just another paycheck that disappears. Maintain Your Budget After you’ve made your budget and financial plan, make a commitment to stick to it as much as possible. Reevaluate Your Budget as Needed Life is always changing, and your budget will undoubtedly change along with it. I recommend reevaluating your budget every quarter or at least yearly. Be GenerousIt may sound crazy, especially if you have extremely limited funds, but as many of you already know, it is truly more blessed to give than it is to receive. And there are many ways to be generous besides writing a check, even just sharing a meal with a neighbor who’s under the weather can be more important than any amount of money they could possibly have. You may feel you can't afford to do anything, but life will surprise you. So lets make our plans, stick to our budgets, and keep our eyes and ears open for how we can always be generous… that’s living a better life! Click here if you missed Living Paycheck to Paycheck: Part 1
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