In the grocery store earlier this week, I overheard a conversation with what I assume was a mother and adult daughter. Mom was talking about how tight things were when she and her husband were first married, how they budgeted and saved for close to a decade to finally take a vacation and all sorts of tales of how life is so much sweeter when the bills are paid. A minute or two into Mom’s pep talk, Daughter says, “Mother, please. I’m broke as the Ten Commandments. How am I supposed to budget what I don’t have?” Mom didn’t have an answer, but it did give me an idea for today’s topic.
The good news is the hardest part is the part you’ll do first. Think of it all being downhill once you master phase I. Too many times, we “sort of” budget. See if any of this looks familiar to you (and we’re using easy numbers for the sake my own brain’s addition and subtraction skills):
- Net income per month: $1,500
- Rent or mortgage: $400
- Total utilities (phone, cable, etc.): $300
- Groceries, gas and other expenses: $400
- “happies” (manicures and pedicures, and other other “wants” that aren’t needs): $100
OK – so that leaves $300. You’re making your retirement contributions before your taxes come out, so there are no worries there. Ideally, you’re putting the majority of that $300 in savings. But here’s where it gets tricky:
The best friend calls on a Friday evening, terribly upset because Mr. Wonderful dumped her. Ten minutes later, you hear yourself saying, “Get dressed and let’s go to diner. We’ll talk it all out.”
Subtract $100 from that $300.
Then you receive an invitation for a housewarming party later that month. Subtract $100 for a gift.
Then your car needs a battery. Subtract another $100.
Now, it’s just the 15th of the month. And you’re broke. Or, as the woman in the grocery store said, you’re broke as the Ten Commandments.
Because you “sort of” budgeted, most likely because you’re like so many Americans these days who say there isn’t much to budget, you’re not prepared for the best friend meltdowns or the flat tires or the housewarming gifts that you’re certain are bad etiquette considering this couple moves every few years and grab tons of loot each time they do in the name of a “housewarming” party.
If you can make up your mind that it’s not always going to be this way, and decide to buckle down – even for a year – and sock away all that money, you’re positioning yourself to pay the credit card balance each month to avoid interest. You’re putting away that emergency fund in the case of a layoff. Most importantly, though – you’re learning financial discipline. It’s a tough lesson, but once you’ve mastered it, you then become king or queen of your own castle. Make no mistake – it’s a powerful feeling.
Once you’ve made that decision, you’re then able to rethink things. And to help you, here are a few things you should be doing:
As part of getting over that hard part, you should be doing all you can to avoid those immediate crises. If you’re calling the utility companies and credit card companies each month to request an extension, make a commitment to yourself that for one month, you’re not going to give in to those pricey dinners out with the best friend. You’re going to politely decline that next housewarming party – or better yet, decline the invitation, but if the guilt is too much, bake a cake and bring it over next weekend.
Usually, a month is all you need if you’re requesting four or five day payment extensions. That said, if you do need an extension of time to pay your bills, avoid calling your credit card company at all costs. You’ll pay late fees and more interest if you do. Worse, a late payment may trigger an automatic interest increase (though the credit card company must provide notice before it changes your interest rate. It was part of the 2009 CARD Act). Make that your last resort.
Speaking of credit cards, if you’ve paid your account on time for quite awhile, give them a call and ask for a lower interest rate. You might be surprised to learn they’re more than happy to do so. After all, you’re an established customer and they don’t want to lose you to the competition.
Do It Anyway
Even if it feels like you’re budgeting money you don’t have, do a budget anyway. Sit down, write out all of your expenses, your income and anything else that affects your finances. It’s usually during those times that we see patterns emerge that can result in big changes. You’ll likely see the perfect solution in the math. Also, track every penny you spend. Every. Penny. Here’s why: there was a time when I justified buying a pricey coffee each morning.
I figured, “I don’t go anywhere, I work every day and I deserve a coffee every morning”. It was true – I did deserve it. But on a whim, I bought everything I needed to make my own coffees like the famous coffee maker does. Turns out, not only did I like m own version better (I added as much whipped cream as I wanted), but I saved….this still amazes me – but I saved $40 a week. That’s $160 a month. That’s also about what my power bill runs each month. It was quite the enlightening realization.
The bottom line is once we rethink the way we look at money, credit and life in general, we can often use those realizations to take a step back and realize that even if it’s not a lot of money we’re budgeting, we’re actually make incredible strides towards financial security. The best part of it is when you make up your mind to go into it – despite any misgivings – you go into it with an open mind – you’re always going to be glad you did.
Even if it’s not perfect at first, empowering yourself to redefine it as you go so that it’s sculpted into a solid solution that works for your own finances, you’re going to discover a new mindset that gets stronger with each passing month. There’s freedom in not having to pick up the phone every month to request a payment extension. There’s power in knowing if you lose your job tomorrow, there’s money in the bank that you can fall back on and there’s pure joy in being able to take a friend to dinner without worrying about covering the phone bill.
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