Photo (cc) by normanack
Here’s a recent email from a TV news viewer. See if you can relate:
I have a question and am in desperate need of help. I am in terrible interest hell. My husband and I have a decent income and should have at least $1600 per month that should go to savings however every month something happens to whittle that away, such as last month I had to get a new air conditioner unit for our house $2k, this month car and pet expenses not planned for $700… I have poor credit…no bankruptcy or anything, just slow payments. Because of this, I have to pay cash for everything which wouldn’t be bad if I had the extra money. This month I took my car title to my Jeep Grand Cherokee of which I was so happy to have paid off to a car title loan place and now I have a $1k dollar interest payment due. I can pay it…but again there goes the money. I just can’ t get even in order to start over again. I am looking for suggestions and have an ulcer over constant day to day worry over my finances and the phones ringing off the hook at home. I thought of getting a 2nd job however I did that several years ago and it ended up placing me in a higher income bracket…had to pay more taxes. Citifinancial will not refinance my home due to my slow payments…I am current with mort and home equity with them.
Please give me any advice that you can, I just don’t know where to turn.
Income take home: $6600
Expenses including groceries and gas: $5000
Here’s your answer Sue!
If the numbers you’ve supplied are accurate, it wouldn’t appear there’s a problem, since you have more monthly income than expenses – a lot more. But there obviously is, or you wouldn’t have written. So I want you to take these three steps: the sooner the better.
Step One: Spending Plan
The ultimate ulcer cure – a spending plan. Are you currently tracking your income and expenses, Sue? Or, like many people, are you just ball-parking the expense side? If you’re not writing down every penny of money coming in and money going out, go to this page and download one of many free budgeting worksheets we link to there. Then read 4 Reasons Budgets Fail and How to Create One That Won’t.
Talk to your spouse and agree to use one of these budgeting tools to record your expected and actual expenses so you can compare the two. Record every penny you spend, every day. When you start doing this, expect three things to occur.
- Since you’re now proactive rather than reactive, expect to feel more in control and much less stressed.
- Expect to find out where you money’s really going.
- Expect to be in a position to make positive changes of your choosing at your own pace.
In your case, I’m willing to bet that taking this step will reveal that your spending isn’t actually $5,000/month – it’s going to be a lot more. How do I know? Because if you were actually spending $5,000 while earning $6,600, you’d have plenty of money already set aside to meet the emergencies that periodically occur. You would not have slow pays and you’d never have visited a title loan company. So find out how much you’re actually spending by actually tracking your expenses, not just estimating them. Estimating is for things that don’t matter. Make no mistake – this does.
When you know how much you’re actually spending, it’s like turning a light on in a dark room. There before you in black and white will be the problem, if there is one. If you see that you’re consistently spending more than you’re making, sooner or later you’ll go bankrupt – the only real question is when. So if that’s what you see when you turn on the light, fix it.
How? One or a combination of three things:
- Make more money. You mentioned getting a second job – that may be one solution.
- Spend less money. The reason you’re tracking your expenses is so you can make choices about where to spend your money. Make a list of the thing in life that make you happy. Stop spending money on things that don’t appear on it. That may sound overly simple, but it’s true: most of us are spending money on stuff we don’t really want or need. And on the stuff we do really want and/or need, there are almost always ways to save without sacrifice. This website is chock full of them – check out our Tips page or our 205 Ways to Save.
- Get help. If a large part of your income is going to debt payments, try getting help. There are free, quality debt counseling organizations that can offer advice, stand between you and your creditors, get some credit card rates reduced and your payments lowered. But be careful, since there are really sleazy ones out there, too. This story: Help with debt – Credit Counseling will tell you what you need to know.
Step Two: Savings Plan
What you’re describing, Sue, is what the vast majority of people do: they pay all their bills, promising to put away anything left over. Yet, magically, no matter how much they make, there isn’t anything left over. How does this happen? Because we don’t pay ourselves first, then fritter away our funds. Starting immediately, have 10% of each paycheck taken out and put into a savings account. Out of sight, out of mind, but in the bank. Then try like hell never to touch those savings.
Step Three: Credit Plan
The plan when it comes to borrowing is simple: don’t. When you borrow, you pay interest, which leaves you less money. Since the whole point of money is to have more rather than less, borrowing is bad. It makes financial sense in only one situation: when what you’re buying with the borrowed money goes up in value by more than the interest you’re paying to buy it. That would exclude 99% of the things most people borrow for: cars, clothes, vacations, etc. A house, an education, a business? Maybe.
But sometimes we don’t have a choice. That’s why it’s important to do everything possible to maintain a good credit history, primarily by paying bills on time. If you don’t, the consequences are dire: paying way more interest than other people do, finding fewer willing lenders – even not being able to borrow at all, as with your refinance. Not good. Here’s a story on how to clean up your credit history so if the need to borrow does arise, you can deal with a credit union or a bank instead of a car title loan place.
In conclusion, Sue, track your expenses, then cut them. If you need help, get some. Start a forced savings plan. Do these things right now. Begin the final step – gradually cleaning up your credit – as you gain control and confidence.
This is no overstatement: doing these simple things will change your life. And they won’t cost you a dime, nor will they occupy more than two hours a week of your time.
Please let me know how it works out!