Setting a personal budget and sticking to it can be difficult for a wide variety of reasons, from poor spending habits to external factors such as job loss, divorce, or medical bills. It can take a lot of effort to make your budget work, even in the best circumstances, so it's important to learn how to handle the inevitable hurdles that will arise.
1. Cash Flow Issues
If you are paid once a month, you may experience times of feast and famine financially. If your bills are due at the beginning of the month, you may see the majority of your money disappear in the first week or two and then struggle to cover groceries by the end of the month. Waiting on your next paycheck to make ends meet can cause a lot of stress and anxiety.
A similar problem occurs when you are paid weekly, leading to you struggling to pay your bills at the beginning of the month while you have a lot of extra cash later in the month. In either case, it's an issue of cash flow management.
- Better planning is the key to addressing this. Regardless of when you are flush with cash, it's important to set aside money for the times when you are not.
- If you're only paid monthly, divide your month into weeks and set aside the money for the remaining weeks of the month into a savings account. In effect, you need to create a system for yourself that resembles being paid weekly.
- Transfer the money from your savings account into your checking account each week. This will help you to stop spending when you have reached your quota for the week.
- Another option is to do the same thing using the envelope system by setting aside cash for each week of the month.
- You also can contact your creditors and utility providers and see if they are willing to change the due dates on bills. Some companies might be willing to work with you so you can distribute due dates more evenly throughout the month.
2. Communication Issues
You may find that you are great at budgeting by yourself, but when you are in a relationship or married, it is an entirely different issue. Communication is key when you are budgeting as a couple. If you do not communicate, you will not know how much money is left in each category or how much you have left to spend. You also may end up fighting about money.
- The first budget fix is to start meeting to review the budget on a regular basis. It may need to be every night at first or once a week.
- The other solution is to find a budgeting app that you can both update as you spend money. If you are both entering your purchases as they happen, you easily can track what is left in the account as it happens. This is a fairly simple solution to prevent overspending.
- Once you have started budgeting well, you can meet less frequently, but be sure to keep a regular meeting. This keeps communication open and helps prevent problems from starting again.
3. Problem Categories
Everyone has problem categories where the spending is nearly always more than you expected it to be. You may have issues with entertainment, clothing, or food costs. A problem category is often related to something you love doing or something you hate doing. Once you identify this, you can begin to find a solution.
- The budget fix for this problem is to change the way that you handle it. Switching to cash only for the category can work, especially if you are shopping in person at a store. This won't work for online purchases, obviously.
- Use a reward system. If you limit spending in the category, you get extra money at the end of the month to spend on something you love. If you are overspending on eating out because you hate to cook, you can reward yourself with dinner out at a nice restaurant if you stick to the budget and cook.
- Consider cutting back on other categories to increase your spending in areas where you consistently spend more than you should. Track spending for a while so you can work with realistic goals and shift priorities as necessary.
- Find ways that you can make sticking to your limits easier. For example, if you are spending too much on takeout because you are too tired to cook during the week, consider cooking enough food over the weekend for the entire week. Pay for a service that does the grocery shopping for you to help save money and make cooking at home easier.
4. Expenses Exceed Income
You may not realize how big this problem actually is until you sit down to tackle your budget the first time. Sometimes the solution is to cut back on your spending, but you also may realize that you have an income problem. It is important to find a permanent solution to this problem.
- The first step to fixing this problem is to cut all unnecessary spending, at least temporarily. This will give you a chance to get a handle on the problem. Remember that necessary spending includes shelter, essential utilities, food, health care, and transportation.
- After you have done that, you can begin to add back in your other categories. Add slowly, though, and carefully track expenses so you don't end up living outside your means again.
- Look for ways to increase the amount you are earning. This may need to be a permanent fix, and you will need to look for ways to move into a better job by setting clear career goals and possibly going back to school.
- You may only need to increase your income temporarily until you pay down your credit card debt and can better manage your financial situation.
There are many reasons why you might find yourself buried in more debt than you can afford. Perhaps it grew gradually from overusing credit cards for unnecessary purchases, or perhaps you had an unexpected and expensive medical emergency that now needs to be paid off. There are multiple approaches to paying down debt, but they all involve eliminating the use of credit cards while trying to dig yourself out of the hole.
- If you are paying down have multiple accounts and the sum of the monthly payments is more than you can afford, consider consolidating the debts into one account with a lower monthly payment. For credit cards, you might be able to transfer balances. For more complex situations, you might need to look into a debt consolidation service.
- Target debts with the highest interest rates first in order to best limit how much you need to spend to get out of debt. However, if reducing the number of accounts you are paying on is the goal and you have not consolidated the debts, target the lowest balances first to get them out of the way quickly.
- If necessary, seek professional financial assistance.
Job loss can impact anyone at any time, and the financial impact can be devastating. Even if you received a severance package or are drawing unemployment, your income has likely taken a significant hit. Obviously, you want to find a new job, but you also have to cut expenses as low as possible while seeking another position.
- Eliminate unnecessary expenses as soon as possible. Stop eating out and start cooking with low-cost ingredients. Cancel extraneous services like cable or satellite television. You might even need to think about trading in your car for one with lower payments. In extreme situations, you may need to consider selling your house, getting a roommate, or moving out of your apartment in favor of cheaper housing.
- Tap into your emergency funds if you have them. If you've been diligent about putting money away for just such an emergency, this is what it is there for.
- Treat job hunting the same way you would treat a job. Set a weekly work schedule for researching opportunities, updating your resume, writing cover letters, sending them to prospective employers, and reaching out to professional contacts to market yourself. Stick to this schedule like you would a work schedule.
- Work, when reasonable, even if it is not at the job you are targeting. Taking on a part-time job or venturing into the gig economy as an Uber driver or something similar may not be what you want to do long term, but it shows prospective employers that you are a hard worker and that you dealt with your job loss in a proactive way.
As multiple financial problems mount, it's possible to reach a point when you fall behind on your mortgage payments. Making these payments should be at or near the top of your priority list, but in the worst scenarios, there simply isn't enough money to stay current. It does not have to be a disaster, though, and there are programs that can help homeowners get back on track.
- Seek professional financial help as soon it is evident that the problem could get this bad. Many lenders will work with homeowners to connect them with nonprofit groups or other agencies that assist homeowners facing foreclosure. Lenders may even help homeowners by changing the terms of the loan to lower payments or letting you defer a payment, but it's important that you be proactive and address the problem as soon as possible.
- If you have stabilized the situation with your lender or are participating in a program to help keep your home from foreclosure, you still likely need to make some serious decisions to keep from falling behind on mortgage payments once again. If you don't have the income to keep up with your mortgage payments long-term, these decisions could involve putting the house on the market or getting a roommate whose rent payments can help cover your mortgage.