Budgeting & Managing Your Finances in Tough Economic Times
When times are tough, you have to manage and streamline your finances and expenditures just to survive in some cases. A well-planned strategy can help you not only survive challenging economic times but thrive as well. If your expenses exceed your income, you have to look for ways to cut down on expenses and if possible increase your income. Preparing a budget can be time consuming, but it is worth the effort especially if it helps you manage your finances more efficiently and effectively. A budget also helps you determine where you can cut back on spending.
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Instructions
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Make a list of all your current expenses. Before you can create an effective plan, you have to see where you are today in terms of expenses. You'll want to list cable, Internet, auto insurance, homeowners insurance, utilities, rent or mortgage payment, clothing expense, food, tuition or student loans, books, entertainment, social clubs, health and fitness membership, medication, credit card debt, bank loans, home repairs, auto repairs and even extended warranties.
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List all sources of income. Make sure you include income sources that are reliable, primarily from your place of employment. It's not a good idea to include overtime or bonuses as a source of income because you never know when they will be reduced or cut out altogether. Include your spouse's income as well. You can include other consistent, reliable sources of income.
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Determine if there is a shortfall or overage. If your income is not enough to meet your monthly obligations, you are running a deficit. Another term for this is insolvent, which is when your liabilities exceed your assets or income. If you are running a deficit or just barely getting by, then you need to look at ways to cut down on your expenditures or make more money from another income source.
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Look for ways to save money. The best way to do this is by scrutinizing every expenditure. If you have cable you may want to cancel or reduce it from the deluxe to the basic package. Call your auto insurance company and see how you can reduce your insurance premiums. One way is to increase your deductibles. If your auto is paid off, you may want to drop comprehensive and collision coverage and only have liability coverage. This will depend on the value on your car. When you combine your homeowner's insurance with your auto coverage you receive a discount. Some insurance companies will reduce your premium if you have certain safety features on your car such as alarms and air bags.
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Find more expenditure cut backs. Cut back on your entertainment expense. If you go to the movies every week you may want to go only twice a month. Taking your lunch to work can save quite a bit of money. If you contribute 10 or 15 percent to your 401(k) you may consider a temporary reduction to 7 or 8 percent. When things get better you can always increase it again. Start clipping coupons for grocery store purchases. In certain situations, generic products are just as good as the name brands, and they cost less.
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Put some money into a savings account. After you have cut back every way possible, see if there is money left over to start a small savings account. This may be challenging initially, but you should be able to get it going if you start with a small percentage of your income. Maybe 1 or 2 percent is all you can manage. Eventually you will be able to increase this amount with some more planning and cutbacks. A saving account serves as an emergency fund. Pay down any credit card debt you may have.
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Tips & Warnings
When times are tough, interest rates are low. You may be able to refinance your first mortgage and lower your mortgage payment.
Speak to a financial adviser about the budget you have put together. He may have additional tips and strategies.
Certain industries still offer overtime when the economy is in a downturn. Pick up a few extra hours of overtime. Take any bonus money and pay down debts.
References
- Photo Credit my capital image by Natalya Korolevskaya from Fotolia.com
