Even with a budgeting plan in mind, you’ve blown your budget and are now trying to figure out if its better to hide under the covers until a genie appears or tally up and see how bad the dent really is.
First step is breathe! With a bit of reality, rejigging and planning it is possible to prevent things from spiraling any further. It probably won’t be a quick exercise to undertake, but knowing where you stand and having a game plan will decrease your stress levels. To start things, you’re going to need a paper and pen or spreadsheet open in front of you.
3 Steps for Assessing Your Blown Budget:
1. Look at your bank accounts, all of them; cheque, credit and savings:
- Tally up how much actual money you have (total cash on hand)
- Total the pending payments such as those on credit cards
- Note if you have savings which are immediately accessible
2. Compare how much money you have against:
- The total of your pending mandatory expenses (rent, insurance, medication…)
- The total of your flexible expenses (food, toiletries, entertainment…). Looking back on bank statements can help remind you what you’ve bought and for how much. This is the area of your budget where you will be looking to make the greatest number of changes to save money.
3. Do you have anything that:
- Is on order that can be cancelled for a refund?
- Can be returned for a refund or exchanged for an alternative purchase such as groceries?
If yes, add an extra column to your budget for potential cash-in. As tempting as it may be to add your expected refunds into your disposable income total, don’t. This will create a false sense of security. Especially, if the company has a waiting period on refunds. Rather update your disposable income total once you have received the refund.
Time to get real!
Ideally you don’t want to dip into your savings or increase your credit limit unless absolutely necessary. Once you know how much money you will need to make it to your next pay check, then you need to decide how to make up the difference between what you have and what you need.
- What is your total cash on hand once you have deducted your immediate debt payments and mandatory expenses? This is your new disposable income and it ideally needs to cover your flexible expenses
- Go through your flexible expenses and see what you can realistically eliminate or decrease right away
- What is the difference between your new disposable income and your flexible expenses? Your new disposable income is the minimum amount you need to decrease your flexible spending by in order to break even
Dipping into Savings
Only assess how much you can use if you really have to dip into your savings. If you’ve been saving for a specific item then that’s the money you want to dip into. If you’ve been saving so you have an emergency fund should you need to fix something like your car, it’s best to be cautious about if and how much you should take out.
3 Possible Ways to Budget for Extra Money
Unfortunately, if you don’t have savings you can dip into and your disposable income doesn’t cover your mandatory and/or necessary flexible expenses, it is quite likely you will need to make a contingency plan. This could mean that even once you get your next pay cheque you will still need to be tightening your belt for a while.
- Do you have anything that you don’t need or aren’t using which you can sell? Avoid selling anything, such as your only car, if you know you need it and will have to replace it as soon as possible
- Can you pick up an extra shift, a temporary weekend / evening job, or even a casual job such as babysitting?
- If you need to borrow money or use a credit line when assessing options, remember to factor in time allowed to repay the debt and interest charged on money borrowed. Borrow only from a reputable lending institution like your bank or someone you can trust. Ahead of asking, work out the minimum amount you need, how you are going to repay it and how long that will take.
If you need to borrow money, then its prudent to use it to cover expenses that can’t be avoided rather than flexible ones and nice to have items.
While it can feel like you are admitting defeat or have failed and it could be embarrassing, talking to a debt counsellor or financially savvy non-judgmental family member or friend is usually quite helpful. They can provide an extra pair of eyes on where to cut costs, how to consolidate your debt and what area to focus on repaying first.
5 Hacks for Saving Money Immediately
Every cent adds up. This means that the easiest way to decrease expenses is to look at the everyday things that add up, often without you realising. Take a look at your more flexible expenses and see what you can decrease. Then:
- Plan not to buy take-aways, grab that quick cup of coffee or buy a tempting treat
- Look through your kitchen and plan your meals around what you have already bought
- Opt to buy the cheapest option when you go shopping
- Look through your cupboards and instead of buying another shampoo or lotion use whatever you find
- Switch off lights as you leave rooms and take quick showers to save on electricity
The aim here is to decrease a little across a lot of areas. Often this can yield a surprisingly bigger savings than expected. Remember: Every little bit, no matter how small, adds up in the end! And the more you can cut down on your immediate expenses, the faster you will be able to get financially back on-track without potentially incurring additional unnecessary debt.
Remember there is no “one size fits all” way to budget. Keep to what makes sense to you, be honest about the numbers and consistently stick to a system that you know you can manage. Then enjoy the freedom that comes from knowing your finances.
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