How to Stop Spending Money you don’t have

It is very possible to get out of debt and become financially secure. The easiest way is to make a series of small changes in your habits that will not upset the smooth flow of family life. The method of achieving these changes will be presented in a step-by-step format. Read through the entire article to learn how to stop spending money you don’t have.

1. The first thing that you need to know is who you owe and how much. Gather all of your monthly statements and invoices. Include everyone in this tally: housing payment, utilities, secured creditors (such as an auto loan), credit cards, personal loans, medical bills, repair charges, household services (lawn or swimming pool service), etc. Make a list with each creditor’s name, total amount owed, monthly payment amount, and whether the payments are current of past due.

2. Now make a list of all other recurring expenses such as groceries, car maintenance and insurance, health insurance, prescription medicine, school lunches, mass transit pass for bus or subway, day care, pet care, tithing, dry cleaning, clothing and shoes, etc.

3. Add the current monthly payments (not the past due nor total balance owed) from #1 and the amounts from #2 together. This is the amount of money that you are currently spending every month. Don’t faint at the amount. We will work toward getting it under control in a few minutes.

4. List all forms of monthly income including wages, side jobs, retirement or pension, and investments. Subtract the income from the expenses to see how much money you have been spending that you don’t have.

5. We need to shave the expenses to 10 percent less than your income. Here’s how:

a) Call the electric company and sign up for budget billing. This will completely avoid the wild swings in different seasons since your payment will be the same amount throughout the year. Many electric utilities will toss in the past due balance as part of the budget billing program which will make your account current without additional payment.

b) Visit your auto insurance agent and make the necessary adjustments to lower your policy amount. These might include making sure that you have all of the discounts for which you qualify, canceling unnecessary coverage on old clunkers, increasing the deductible, and whatever else your agent recommends. However, remember that your agent works on commission.

c) Sell all vehicles that have large loans and choose to either ride mass transit or buy one reliable used vehicle. Many families can get along fine with one car if someone works near a bus route or if the couple works within a few miles of each other.

d) If you are renting an apartment in a complex that has a significant number of vacancies, try to negotiate a lower rent with your landlord. It is better for the landlord to collect a lower rent than nothing at all. If he will not consider the offer, then read your lease to see if you can cancel with 2 months notice. If so, find a cheaper place to live. Many large apartment complexes are hurting and, as a result, are offering 1 or 2 months free rent to new tenants. The savings can be substantial as the same size apartment just 1 or 2 neighborhoods away can be $200 per month cheaper (plus the free months). This amount would definitely help you to stop spending money that you don’t have.

e) Another area that can reap substantial savings is food. A family of 3 can eat 3 meals a day for $50 a week. The secret is planning your menu around the loss leaders at your neighborhood stores. Also, check the prices at ethnic stores for staples such as rice and spices. Ethnic stores usually have much lower prices on staples. Find the least expensive places to shop and supplement your savings with coupons and rebates. Learn how to slowly stew a tough cut of meat into a tender and delicious meal and you will cut your meat costs in half. Also, have one meatless meal each week with choices such as macaroni and cheese, homemade pizza, vegetarian lasagna, or whatever your family enjoys. And one very important note: The best way to stay within budget is to go shopping alone and with a list.

f) Cell phones can become expensive if you routinely exceed the monthly allotment of minutes. Get a basic land line phone with only local service and use this for all local calls. It should be less than $15 a month. Also, while a severe storm can knock out the cell tower and leave you without service, the land line phone is a trusty little appliance that keeps on working. However, take advantage of the free long distance on your cell phone when you need to call out of the area.

g) If you are living on a very modest income and have unpaid hospital bills, be aware that most hospitals have a special fund of donations from wealthy benefactors. The purpose of this fund is to pay the hospital bills of modest income patients who are suffering financially. The billing department may not have this information. You might have to go through the hospital administration to start the procedure.

h) Cancel all household services such as lawn service, pool cleaning, house cleaning, etc. Start doing everything yourselves.

i) Call the doctor’s office and ask the nurse if there is a generic equivalent for your prescription. Explain that your first preference is for a medicine on the $4 generic list. If you are paying $100 or more for medicine every month, reducing this expense could help you to catch up on your other bills.

j) Continue in this manner for each and every expense that you have. Chop, chop, chop until you are 10% under your income.

6. Now that you have pared your expenses to 10% less than you earn, it is time to get out of the credit card trap. Start paying cash for all of your monthly expenses. Take the extra 10 percent and split it in half. One-half goes into an emergency fund to stabilize your budget. The other half goes toward the SMALLEST debt to pay it off. For example, if you have 11 credit cards, pay the minimum balance on the largest 10 and all of the extra money to the credit card with the smallest balance. This way, instead of having 11 minimum payments every month, you will soon have 10, then 9, 8, 7, etc.

The best way to successfully make these changes is for everyone in the family to be on board. Be honest with your children because they can already sense the tension. It is much easier for them to deal with not asking for anything at the store than to not know why there is strife at home. Get them involved with helping to find coupons and helping around the house. Pull together as a family and you can become financially secure.