The American Dream is that anyone can be successful and prosper, but far too many Americans fall below the poverty line. What if you are struggling to put food on the table? To keep your house? To pay your phone bill? Most budgeting tips are designed for those with enough money to make ends meet, so we are going to focus on how to manage money when you don't have enough!
When you are broke, it's easy to feel hopeless. As soon as you get paid, it's all right back out for food, bills, gas, and the basics. If you are really struggling, you may not even have enough to cover everything. Becoming financially stable isn't a fun process. Anyone that tells you they have the perfect way for you to get out of debt without sacrificing is full of it! They've either never struggled or are trying to sell you some get-rich-quick scheme. Remember, the American Dream is that if you work hard you can get ahead & that is still possible! It requires working hard, prioritizing, and make sacrifices now so that later you can have a life you can really enjoy – without being one bad month away from losing everything.
I've been there! Our first few years together, my ex-husband & I both worked minimum wage or barely over jobs. We made it work and saved some money. Then I got pregnant with our first & spent half my pregnancy on bed rest. We quickly ate through our small savings account. For over a year, it felt like I was juggling every penny that came in, trying to keep the rent paid, utilities on, and food in the house. Use the tips below on how to manage money to save you from making some of the mistakes I did!
How you got into this situation isn't important. Don't blame yourself or worry about what you could have done differently. Did you lose a job? Just graduate college with a mountain of student loans? Ended up upside down on your home loan and are struggling to make your mortgage payments? Get into a car accident, fall off a ladder, or suffer from a chronic illness? Or were you trying to live above your means? No matter what got you here, just know that what you do from here on out is what counts. When we know better, we do better!
How to Manage Money When You're Broke
Put first things first: Food comes first. You have to stay healthy in order to work (or find a job) to get out of your money crisis. After food, make sure you stay current on your home loan or rent and basic utilities. You need gas in the car to get to work and liability insurance for it, unless you live in an area with affordable public transportation. If you can, try to carpool whenever possible.
Cut Expenses: If you don't have at least $1,000 in the bank for emergencies, get rid of any extras. Cable tv, Netflix, Gamely, or any other monthly subscription needs to go. It's just for now and you will be able to have those fun things later without the additional stress. Sometimes, it's easy to overlook small payments so go through your last 30-60 days of bank transactions and cancel anything that isn't necessary. If you have a home phone and cell phones, consider getting rid of one. Look into a smaller data package or switching to a cheaper provider. Many are offering to pay your early termination fee when you switch now. Republic Wireless is a popular cell phone provider with plans start as low as $10/month and you get refunded for unused data! We haven't tried it, but I've heard great things from others that have made the switch.
Meal Plan: Plan out what you are going to eat every week. Make sure to include snacks so you aren't tempted to splurge while at the store. Pinterest is a great source for budget-friendly meals. If you have a larger family, I put together 7 dinners for less than $100!
Sell Stuff: Look around your house. Do you have an extra furniture you don't know? Any small kitchen appliances? Artwork? What about an extra car? If you have an auto loan, could you sell your car and use public transportation or buy a less expensive car?
Validate Your Debt: Once we were caught up with the basics and were able to really start paying off our debt, I ran our credit reports. On mine, I found more medical than I expected with the same amount. After contacting the hospital, I realized all three companies were trying to collect on the same bill! Not all debt collection agencies are ethical. The hospital owned the debt still, but one of the collection companies “sold it”! After researching, I learned about Debt Validation & sent all three debt collectors a debt validation letter. None were able to prove they owned it and had to remove it from my credit report. I still owed the hospital, but they let me set up a payment arrangement which didn't hurt my credit as bad since it showed I was paying as agreed.
Prioritize Your Debt: Do you have student loans, medical bills, or credit cards? Get your free credit report from annualcreditreport.com (this is 100% free once a year) and make a list of all debt. What is most important to pay right now?
Ask about a Settlement Offer: This works very well for older debt. If you have an old credit card that was closed, contact them & ask if they would be willing to settle it as “paid in full” for 50 or 75% of what you owe. My ex-husband once received a settlement offer for 40% on his old credit card. I had gotten so overwhelmed that I was just putting all of the bills in a little tote to go through later. When I finally went through everything, the settlement offer was expired & I ended up getting them to settle for 65%. No matter how far in debt you are or how little money you have, OPEN everything. File everything in a filing cabinet or expanding file, making sure to put settlement offers in a separate file. When you have any money not already spoken for, go through the file and see what you can pay off. If it has already expired, call them & see what they are willing to offer if you pay today.
Avoid Debt Consolidation Loans: You have probably seen the commercials and ads: “Can't Pay Off Debt? Lower Payments, Interest & Fees”. Most of these programs turn unsecured debt like your credit card or medical bills into secured debt, using your house or car as collateral. If you aren't able to pay it, you have just put your home or way to work in jeopardy! Debt counseling also sounds good, but most companies cause an enrollment fee plus part of your monthly payment goes to them instead of your debt!
Get a Second Job: Consider getting a part-time job to help you through this rough time. Whether it's flipping burgers, delivering pizzas, or whatever you can find. Remember, this is just for NOW. You won't need to work this hard forever, I promise! If you are a SAHM and daycare costs more than you can make, consider doing in-home daycare for a few children, even on a part-time basis.
Set up a payment arrangement: Many companies offer payment arrangements. Some utility companies will do budget billing, where you owe a set amount every month based off previous usage, and they will split your past due balance up over the course of a year.
Ask for help: There is no shame in admitting you need a hand up! Look into low-income programs such as WIC (if you are pregnant or have a little one), LIHEAP (assistance for heat during the winter months), or other local programs that may help with your rent & utilities while you get back on your feet.
Set up an emergency fund: Murphy's Law always seems to kick in once you start making progress. The car decides to act up, someone falls & needs a trip to urgent care for stitches, or the furnace goes out. Before you start paying off your debt, SAVE for those emergencies that would push you back. As soon as you are current on your necessities, start putting every extra penny in a savings account. Once you hit $1,000 you are ready to move to the next step – paying off debt. Whatever you do, do NOT touch that savings account unless there is an emergency and no, wanting that new pair of heels on sale doesn't count as an emergency!
What is your biggest financial struggle – controlling a shopping habit, not enough income, burdened by debt, or something else? Leave a comment below!
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