If you’ve read much of what I’ve written, you’ll know I teach that the math of a budget and personal finance is pretty finite. The formula is always:
INCOME – SAVINGS – EXPENSES = 0
If you’re not able to make the math of that formula above work out, then something must change. I suggest two things. First, you need to get out of the cycle of living paycheck to paycheck. Otherwise, if you have any unexpected expense of any size you are bankrupt! So what’s first – get an emergency fund. Whether you need to put in some overtime, make a little money through a hobby or some other activity, do anything you legally can to quickly accumulate one paycheck worth of income to set aside as an emergency fund. Once you’ve gotten the extra money to get out of the paycheck-to-paycheck mentality, you can ease up a bit on working too much and wearing yourself out just for the sake of money. But don’t slack up too much until you’re sure the math of your situation is workable.
Second, review all your household expenses to see if you can make any cuts. Some bills you may be able to do away with entirely (like cable TV, for example). When it comes to doing your grocery shopping, become a couponing expert and stockpile foods that are on a good sale so you don’t pay full price later. If you’re not spending the money each month, you get to keep it and use it somewhere else. As elementary as that sounds, it is an important principle!
Hopefully with this two-pronged attack of having an emergency fund in place and cutting expenses, you can see the math starting to work in your favor. If you’re still out of balance, go back and repeat this process again until you find some other ways to either bring in extra income or cut expenses further. Be careful though, if you find that you constantly have to work overtime or take on a bunch of projects just to bring in enough money, there is a good likelihood that you’re going through one/both of two challenges:
- Your housing or transportation costs are unreasonable
- Your income is truly too low to cover the reasonable expenses for your household
To tackle the first challenge, you may need to sell your car or home. That may be a tough pill to swallow, but if you’re living in a house that requires you to work 60 hours a week just to pay the mortgage, is it worth it!? Same goes for your car. If you have to work overtime every week just to drive that shiny new BMW, wouldn’t you a bit happier in a car that didn’t cost so much!?
To tackle the second challenge, you may need to seek another job. This is another tough call, especially if the job market where you are is tough. But if your current job simply doesn’t pay enough, you need to look elsewhere.
Even though I’ve suggested some changes in this article that may be tough for you to follow, I bet if you implement even the first part of setting up an emergency fund, you’ll find things start to turn around. As Jon Acuff said in his book, Quitter, “…not doing anything is its own decision, and the odds of failure are horrible.”