Budgeting When You're Broke

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Suffering from a lack of cash? It's likely that you don't follow a budget that reflects your earnings. Smart budgeting prevents eviction, increased credit card debt, and ruined credit scores. It's never too late to achieve your financial goals — get started now with these 10 steps to make your financial life less stressful.

Avoid Immediate Disasters
Don't be afraid to request bill extensions or payment plans. These requests are often granted. If your biggest worry is eviction from your apartment, talk to your landlord, but, also, see if you can get extensions on any other expenses to free up money for keeping your home. For instance, suppose that your rent is $650 and you're $200 short. Your bundled phone bill and cable bill is $60, your electric bill is $100 and your cell phone bill is $40. If these bill payments are postponed until your next paycheck, you can pay your rent now and avoid eviction.

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Review Credit Card Payments and Due Dates
If you are only making the minimum payments on your credit card(s), you are flirting with a disastrous credit score. However, avoiding credit card payments will only worsen your debt.

For example, suppose that your minimum payment on a $1,000 balance is $40. You fail to pay $40 on time, so you are charged a $35 late fee. In addition, your interest on future charges is charged at the default rate of 25%. Now your credit card is even more difficult to pay off. Before you know it, you have an overwhelming collection of piled up late fees and missed payments.

Prioritizing Bills
Go over all your bills to see what must be paid first and then set up a payment schedule based on your pay days. You will want to leave yourself some catch-up time if some of your bills are already late. If this is the case, call the bill companies to see how much you can pay now to get back on track toward positive status. Tell them you are catching up and going on a stricter budget. Be honest about what you can afford to pay. Sometimes it's instinctual to say you'll pay the full amount on your next paycheck, but you may not have the full amount available after other expenses take their cut.

Ignore the 10% Savings Rule, For Now
Stashing 10% of your income into your savings account is daunting when you're living paycheck to paycheck. Balance your budget before starting incremental savings. It doesn't make sense to have $100 in a savings plan if you are fending off debt collectors. Your piggy bank will have to starve until you can find stability in your finances.

[Click here to check savings rates in your area.]

Review Your Past Month's Spending
Online banking and online budgeting software help you categorize spending so you can make adjustments. For instance, with online banking, with a few mouse clicks you can categorize your money for expenses, such as dining, food and utilities.

Negotiating Credit Card Interest Rates
If you have good credit, call your credit card companies and ask for an interest rate reduction. If you don't ask, you won't know, as it's unlikely that credit card companies are going to initiate a reduction on their own.

Eliminate Unnecessary Expenses
Do you need to cut back on coffees? Or movies? Or do you often have spoiled groceries? All cutbacks should start with items you wouldn't miss, such as switching car insurance companies to get a cheaper rate, or reducing your fresh food purchases if you find food spoiling before you can eat it. Eating out is even more costly, so examine how much and how often your really need to do this.

Journal New Budget for One Month
Once you've gone through the first eight steps, monitor your progress by journaling for one month. You can do this by noting everything you spend in a notebook, budgeting apps on your phone, or with financial software. How you track your money isn't as important as how much you are tracking. Focus on ensuring that every cent is tracked by dividing your expenses into categories, such as rent, food, clothing and utilities.

[Click here to calculate how much you're spending.]

Adjust Spending as Needed
If, after journaling for one month, you've found your budget isn't where it needs it be, get prepared to make changes. Look at how much you are over budget and decide where you can cut. Don't rule out items that are viewed as basics, such as groceries, utilities or rent. Cooking from scratch can eliminate the cost of pre-packaged foods, and opting for generic brands over brand names will equal big savings on a cart of groceries. Utilities can be reduced by turning off lights when you leave the room or using a lamp instead of elaborate track lighting. You may be able to negotiate better rent the next time your lease is up, or you could always move to a less expensive place.

Seek Out New Sources of Income
If your current budget doesn't balance or you're barely scraping by, you may need to look at working overtime, getting a second job, or possibly getting a new, higher-paying job. Often there is work that pays more, but the nature of the work is unattractive. You may need to decide if it's better to be unhappy at work or unhappy with debt.

Conclusion
When you're short on cash, a strict budget is your best tool for correcting your situation. Employing sound money management can mean the difference between financial disaster and financial stability.

Reyna Gobel is a freelance journalist and self-professed financial geek, who realized in her finance classes that personal finances weren't nearly as complicated as she thought they'd be and set out to spread the word.Gobel is also the author of "Graduation Debt: How To Manage Student Loans And Live Your Life" (2010). Her website is Graduation Debt.

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