When the economy gets tough, it is time for consumers to get tough. That also means that you, or whoever handles the finances in your family, also need to get tough.
If, like many consumers, you are finding it hard to make ends meet, then simply put, you have only a few options. You can continue to spend more than you make. You can decrease spending (ideally so that spending is less than income). You can increase income (so that it exceeds your spending). Or you can both increase income and decrease spending. This article gives an overview of these concepts. Look for other articles in the “Family Economist” series that will cover these, and other consumer-oriented financial topics.
Continue to spend more than you make
If you continue to spend more than you make, you will eventually exhaust any savings you might have. Continuing to spend more than you make after savings are exhausted then creates an ever-increasing mountain of debt. While there may be circumstances that cause this situation to arise for short periods (such as being between jobs for a few weeks, or even a month or two), it is important to not allow this situation to continue any longer than necessary, as well as to minimize the disparity between income and expenses. While it can be tempting to ignore the problem, do not ignore it. I personally know of one woman who ignored the problem until she finally obtained a lawyer and filed bankruptcy, which was denied. The woman’s home was foreclosed on for less than the existing debts, her credit was ruined, and she ended up in a small one-bedroom apartment in a run-down neighborhood.
Decrease spending so that income exceeds spending
There are usually a number of ways to decrease spending, although some may seem painful. Start by creating a tracking budget, as it is almost impossible to find ways to cut spending if you do not have a record of where you are spending money in the first place. Keep in mind that everything adds up. When you track your spending, everything counts, and keep details. For instance, if you normally give yourself $45 a week for lunches and coffees while at work, do not just write down “lunch and coffee expense, $45”. Instead, write down each time you buy coffee or lunch. If you are carrying balances on your credit cards and have not been late, call and ask for a lower interest rate, so that more of the payment goes to paying down the balance.
Increase income so that it exceeds spending
Whether you work full-time, part-time, or not at all, there may be ways to pick up some money as income. Writing for an open content network such as Associated Content is one way. Consider taking a part-time job; even if you only work one evening a week, that is still more income coming in. Some businesses will still give employee discounts for their merchandise, so it may pay to look at working part time for something you like. I know of one person who loved golf, so he worked part-time at a golf course to get free tee times. Another liked books, and found work at a bookstore with a significant employee discount. Hold one or more garage sales; you can pick up some money and de-clutter, all at once. If you have spare time during the day and like pets, consider offering a pet-sitting or dog-walking service in your area.
Increase income and decrease spending
Ideally, when your income is not sufficient to meet your spending, you can work on the problem from both ends – increase your income and decrease your spending. Doing so often helps to make the changes feel somewhat less painful, because you are occupying some of your previous “free time” with an income-producing activity.
Get everyone in the household on board
If you are the only person in your household, then the entire burden is on you to learn how to trim expenses and increase income. However, if you have others in your household, it is critical to get everyone on board for the plan to work. Otherwise, you might find your plan sabotaged by an unhappy family member. I know of one case where a teen was very angry that the mother had cut everyone’s discretionary spending allotment. The teen managed to get the mother’s credit card information, and went on a spending spree, ordering clothing for friends and herself through the telephone. To hide her activities, she had all the purchases delivered to friends homes. The mother did not find out about this spending spree until the credit card bill arrived; the teen had ordered nearly four thousand dollars in merchandise, far exceeding the extra money the mother had received from working part-time in a bookstore. Even after returning as much as could be returned, the mother was forced to choose between having 13-year-old arrested for credit card fraud, or accepting responsibility for thousands of dollars in charges.
In summary, if you are finding it tough to make ends meet, you need to find ways to increase income and/or decrease spending. It is critical to track your expenses in detail, and to have everyone understand what you are doing, and why. If the concepts of tracking expenses, making and keeping a budget, and looking for areas to trim expenses are difficult concepts for you, then look for the articles in this series to help you through these steps.