How to Budget When You Are Broke?

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 BrokeEvery problem has a cause – if yours is an almost permanent money drought, the root of the issue is how you handle your budgeting. Thankfully, the cause and the solution can be tackled robustly with some decision action.

Here are some truths for you to put everything into perspective:

The truth about bring broke

If you are broke, you are more than likely in this predicament because you don’t budget or you don’t budget realistically. Have you ever really sat down and calculated what goes into your bank account versus what comes out? For a large number of Americans, living a champagne lifestyle on a beer budget has left them high and dry before next payday.

Why it is crucial to take control of your budget

Getting a firm grip on budgeting can avert some irreversible financial disasters or serious mishaps that take much effort to rectify such as:

  • Spiraling credit card debt
  • Losing your home through missed mortgage payments or eviction from unpaid rent
  • Decimating your credit score and making it harder for you to borrow affordably.

The temptation when money’s too tight to mention is to put one’s head firmly in the sand and hope that the next check doesn’t bounce, but it is so much more efficient to take the proverbial bull by the horns and set some financial goals and rules from today.

4 great tips to put into action right now are:

1)      Forward planning

You need to know what direction cash is flowing and when. This enables you to forward plan but making sure you will have enough to meet bill X on Y date or request an extension of bill Y until Z date. Part of taking control of your finances involves taking the initiative to ask for extensions from creditors, landlords and utility companies when you need them. If you don’t ask, you don’t get whereas when you ask, you might be surprised at how many are willing to give you a little more breathing room.

2)      Pay what you can, when you can

Something is better than nothing. If your $600 rent is due but you are $150 short, your landlord will appreciate you paying what is due in increments rather than paying it all super late. Likewise, if you receive a massive electricity bill and can only afford $100 immediately, pay that and know that you have paid something off rather than nothing and let the bill fester. Budgeting means prioritizing – it’s not fun, but it is going to help you in the long run to say no to what you don’t need and instead chose to pay for what you need. Set up some payment schedules to help get bills paid in bite-sized chunks, especially if you get paid weekly and have monthly bills. Putting aside some every week will help get your budget where it needs to be and your debts under control.

3)      Forget minimum payments

Credit card debt is the kicker for broke people. When you miss a minimum payment, the late payment fee can often be more, putting you further in the debt hole. This is why minimum payments have to be a thing of the past if you want to seriously deal with your budget. For example, if you miss paying your minimum payment of $50 on a $1,100 credit card bill, you will get a $45 late payment fee and your future interest will immediately jump to the 25% interest rate. Cut out the middle man and make the $95 payment from the get-go so that you are paying down the capital at the lower interest rate and not helping make the credit card company richer.

4)      Savings can wait for now

If you are seriously living from paycheck to paycheck, saving cannot and should not be your focus. Your savings will always earn you less in interest than your debts will cost you, so concentrate on paying down debts first. Once you have dealt with the bulk of your debts, you can start to build a nest egg.

What helps you to focus on your finances when you’re down to your last few dollars and need some motivation? Share your “budgeting when broke” success stories and tips with other readers by leaving a comment!


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