I am no financial expert. I didn't go to school and get a degree in finance. But, I grew up in a frugal home and learned from experience that it's not how much money you make, but how you spend it that counts. You may think that I am just B.S.ing my way through this information but just so you know that I know what I'm talking about:
- My husband and I have zero debt, zero.
- We have a savings account that could support us for 5 months without an income if ever that happened (thanks to the job security of the military, hopefully that wont be necessary).
- We have never missed a payment on a bill. And, with the exception of items that we made payments for (ie. my wedding ring, furniture, etc.) all payments were always made in full.
- Every month, in addition to having extra money left over for our savings account, retirement account, we also have enough spending money to splurge a little here and there.
- We are doing all of this on the measly E-3 pay. (Granted I just got a job but have only received one small pay check since starting and the below statements refer to the time when we were a single-income home)
Debt is one the main reasons why people struggle with making ends meet and it is a vicious circle because if you cannot afford to make payments towards your debt you end up becoming more in debt and the hole just becomes deeper. So what do I say? Avoid it as much as possible. If you need to purchase new furniture or appliances do so sparingly.
My brother always made the mistake of biting off more than he could chew. He was known for entering a "rent-to-own" store and rather than purchasing one item at a time would take out credit on several things at once (a couch, a laptop, a refrigerator, etc.). The story never had a happy ending as he always ended up having to take things back after several missed payments and it was always detrimental to his credit.
My husband and I have a rule where, when possible, we only take up debt on one item at a time. Our first purchase was my wedding ring which we were able to pay off completely within the first 6 months, then we purchased a kitchen table that was paid off this month, the next item on our list will be either living room furniture or a new mattress. Rome wasn't built in a day and you shouldn't expect to refurnish your entire home in one day either.
Of course, this isn't always possible. I was lucky enough to finish school without having anything owed towards school loans and my husband and I own our car outright. If you are in a situation like this and you owe money towards a car or school, my advice to you is to pay more than the minimum due when you can. If you got a tax refund, put an extra couple hundred dollars or so towards any debt that you owe. Not only will it help you pay it off faster, but it will give you a little extra cushion if later on you struggle to make payments.
Also, if you are in this boat, do yourself a favor and don't go further into debt. Learn to buy outright. If you want to buy something that you don't immediately have the cash for, save for it rather than put it on a credit card. It might take you a couple of months to get it but it'll be worth it in the end when you don't have to pay interest on it or deal with the added stress of having ANOTHER bill to pay.
2. Bills come first
When the paycheck hits the bank it is really easy to temporarily forget that there are responsibilities that are going to crop up and that pair of shoes you've had your eye on become even more enticing. I am very guilty of this but have developed a system. I map out which bills arrive throughout the month and which paycheck will cover each bill. Only then, after I have done sufficient budgeting to see that all bills and payments will be covered will I splurge on something like clothes or luxury items. But all in all, the bills need to come first. You cannot keep your family warm if the heat gets shut off, you cannot cook for your family if the electricity or gas gets shut off. Not to mention, that it will only do your credit harm if you repetitively miss bill payments and especially if your payments get sent to the creditors!
My husband's family used his name for cable TV while he was still in high school but couldn't pay the bills. It eventually went to the creditors and when he entered the service he was informed that there was $300 deficit towards his name and it was counting against him for his credit. Pay your bills before it gets too far.
Budgeting is the all-time best thing that you can do for keeping your head above water. USAA has some great tools for seeing where your money goes and how to adjust your spending. The ultimate goal is to spend less than you bring in every month. If, when you're evaluating your budget you realize that you are spending more money in a month than you are making, it is time to make some changes. Some large areas that you need to consider when making your budget include:
- Automotive Expenses: Gas, Oil Changes, Upkeep, etc.
- Credit Card or Debt Payments
- Clothing/Shoes Allowance
- Telephone Services
- Pets/Pet Care: Vet Bills, Food, Flea/Heartworm Medication
- General Merchandise: Items you would purchase from Walmart (toiletries, office supplies, etc.)
The important part is to stick to your budget. Making a budget is completely worthless if you don't stick with it. Check up regularly to see how your spending is doing.
A common method is taking out cash that is equal to each category and placing it in an envelope. Throughout the month I can only use the designated cash for that category and once the cash is gone, the spending is done. For example, if you designate $100 to Restaurants/Dining, you take that envelope with you when you go out to eat. You are completely limited to that amount and once it's gone, it's gone. The idea is to force you to stick to your budget.
4. Cutting out the non-essentials
As mentioned above there are a couple of categories of spending that are necessary and cannot be cut out of the budget, but on the other hand, if you are spending more than you should, there are some categories that can definitely stand some cutting. Do you really need that new pair of shoes? Do we really have to go out to eat, when we have all the makings for dinner right here? Is there a cheaper hotel we can stay at when we go on vacation or do we really have to pay $120 a night? Ask yourself these questions when you start to spend money on things that aren't bills, or absolute necessities.
Things to consider:
*Taking advantage of the library vs. purchasing e-books or hard back
* Buying used: books, furniture, appliances, etc. (Do not buy cribs, mattresses, underwear, etc. used)
* Shipping costs for buying online
* Newspapers or Magazines that don't get read
5. Create a Savings Cache
When first starting a savings cache it can be one of the most difficult things to do but at the same time it is one of the most essential things to do. When money is tight you may only be able to put $20-30 a month away into savings but you will feel so much better when it is there. The golden rule is that you should have 3 months worth of living expenses in a savings account. It is not an easy task to do and it definitely takes a lot of time, especially when putting smaller amounts of money back at a time. Having a savings cache is a blessing in disguise though. Not only do you gain interest on money that is just sitting there, but you will have if there is ever a absolute need for it.
My husband and I have been building up our savings for almost a year and have built a nice little cushion if an emergency were ever to crop up. If Mandi got injured and we are still a week away from pay day without enough cash in our checking to cover all the expenses, we'll be fine. When we were planning our PCS to Germany and hadn't received our TLA, we needed the money in our savings to cover the costs of rental cars, shipping Mandi, expenses for our leave in California, etc.. Our savings not only covers us for emergencies though, it acts as a stash if we ever feel the absolute need to splurge on an item. Our savings is large enough that we can have that "3 months worth of living expenses" and still use it sparingly to cover the costs of something we may feel the need to purchase. We got it that way by very slowly putting money away. There were months when we only put away $50 but other months where we put up to $500, heck, there were months when we had to take out $200 or so to cover our basic expenses.
The point is, it is better to save when you have extra one month so you aren't left in the hole the next month when you can't make ends meet. If you put your extra money in a savings account rather than leaving it idle in your checking account, you are much less likely to spend the money. You'll notice a sense of guilt every time you dip into the savings account for something other than necessity.
6. Stop Using a Credit Card
Credit cards are wonderful, demonic little things. It is so much easier to whip out a credit card than to make sure you have cash on you. If you are always using cash, then there is a strict limit of how much you can spend, if using a credit card the limit isn't as visible (until you get the bill back). If you find that having the ease of using a credit card is getting you in trouble, then it is time to put that puppy away for good. Don't cut it up (unless truly necessary) but put it away for safe keeping to limit the frequency of use.
7. Shopping Online
Who doesn't love a little retail therapy? And shopping online and making purchases with a click of a button makes it so much easier. That's the problem, there have been studies that have found that spending amounts increase once you start buying online. You are much less critical than if buying in the store, not to mention the shipping costs that get tacked on for good measure. Don't buy online unless you have searched in stores for what you need and haven't found it. Even then, be weary.
8. Buying Used
There are some things that shouldn't be bought used (mattresses, underwear, cribs, anything unsanitary or unsafe). On the other hand, using sites like bookoo.com or craigslist.com is a great way to save cash on things that you need.
I do not have children, but I do know how expensive children can be. I remember the days in high school when my mom would have to dish out hundreds of dollars to support my cheerleading activities. Do not forget to account for the costs of raising a child into your budget if you have one. When possible and appropriate buy used or borrow from a friend. Newborns and toddlers cycle through clothing like nothing. Why spend $10-$15 per outfit that they are only going to wear 2-3 times when you can find very gently used clothes elsewhere for a fraction of the cost.
Think about how much your child actually needs. Do you really need to spend $500 on them for their birthday? When money is tight it is a great opportunity to teach them valuable lessons of budgeting. A lot of parents want their children to know very little about their financial state for various reasons. But in reality, if you avoid the conversation about spending with your child, you are doing him/her a serious injustice as they do not learn the value of the dollar and do not learn where priorities should lie when spending money. Would you rather your child be temporarily upset about not getting the newest and coolest toy, or end up going in the red for several months or longer because you couldn't say no?
Childcare- If you are using a childcare provider that you have to pay for, evaluate how much you are spending. Is there a way for your child to only do half-days? Can you have a friend watch them one or two days rather than sending them everyday to a CDC? Sometimes the pay for a part-time job goes straight to childcare with little funds left over, so if this is the case re-evaluate who watches your child and when. If you are E-5 or below, there may be some free childcare programs in your area available, you just need to look into them.
In the past several months coupons have become the new shopping craze. Coupons are a great way of saving money even if it's just a little at a time. You don't have to be the "super coupon lady" to save money. If you are willing to set aside about an hour a week to clip coupons, coordinate with sale ads, and plan your shopping for the week you can save on average $50-60 a month doing the minimum.
The key with coupons is to not purchase something that you will not use. You are not saving money if the coupon entices you to spend on something that will just sit in your cupboard. As for coupon tips:
- Pair coupons with what is on sale in stores throughout the week for extra savings
- Combine "manufacture coupons" with "store coupons"
- Make your weekly dinner menu based on store sale ads and the coupons that are paired with it.
I haven't been a big couponer since arriving in Germany because it just hasn't been on my priority list but while in Georgia I was saving about $20 a week on groceries and hygiene products that we needed. The more dedicated you are to coupons, the more you can save.
If you are constantly living in the moment you will find that spending has a keen way of getting out of control. Think about your future and where you want to be financially in a few months, a year, two years, etc. Figuring out where you want to be will help you shape your present and how you budget for the coming months.