Budgeting When You’re Broke – All the Rules You Need to Break, and the One Rule You’re Missing

I’m going to assume you know how to write a budget; if you don’t, this is NOT the place to start. There are plenty of sites on the internet that will give you guidelines on how to get your spending on track and cut back on expenses. Here’s a few now, as a matter of fact.

10 Ways to Budget When You’re Broke

How to Budget When You’re Broke

9 Unbreakable Budget Tips for the Perpetually Broke (link no longer available)

Read some, then come back here and get the rest of the information you need to REALLY make a budget that works.

Ready? Ok, let’s break some rules.

Rule Number One – Cut the unecessary expenses out of your budget

cut up dollar bill and a calculator
photo by Images of Money

This sounds like it should be the answer to all your problems. Quit smoking and buying Starbucks on your way to work in the morning, get rid of your cable, quit eating out on your lunch break, and voila! You have so much more money it’ll be easier to take care of your bills.

So why shouldn’t you do this?

Being on a budget (epecially if you’re coming from spending as you please) is like going on a diet; what’s best for you may actually keep you from succeeding. Cutting out all the junk food you love and cutting down your calories might be ideal, but they’re also excellent ways to make you want to cheat. And the cheating can be worse for you than not dieting at all (think binge eating).

Instead, cut back slowly and realistically. Wean yourself off the Starbucks, or cut down to one every other day. Get rid of some extras on your cable bill, or switch to Hulu and Netflix. And you can go to cheaper restaurants, choose cheaper menu items, and take your lunch to work once or twice a week. You may not save as much money as you possibly could, but it’s better than craving something and obsessing over it until you fall right off the wagon, cheat on your budget, and save no money at all.

Remember, you can’t replace something with nothing.

Rule Number Two – Consider moving to a cheaper place, getting a cheaper car, and getting rid of your cell phone

This also sounds helpful, albeit a bit extreme. But there’s one thing I don’t think those budgeting gurus considered when giving this advice.

All these things cost money.

Moving is expensive

household packed on the back of a pickup
photo by Paul Keller

I should know; I’ve done it way more often than I’d have liked. You need boxes, a truck, packing materials, gas for the truck, and the time to actually pack which may translate into taking time off work. Then, when you get where you’re going, you need rent (which may mean paying rent on two places at the same time for at least a couple weeks), a move-in deposit and pet deposit if you have one, deposits on utilities and any other start-up costs they may require (like the cable company charging for installation).

Getting a cheaper car can cost money

If you have a car loan, chances are, you owe more money on it than the car is worth. So if you sell it, you still have to pay money out of pocket to pay the remainder of the car loan. Which if you’re broke, you don’t have. If you trade it in, you sometimes have the option of rolling over the difference into the new car loan. Making the new car cost more than the sticker price, and saving you less money or none at all. Finally, if you’re broke, you’re going to have a hard time getting a loan at all, let alone one with good terms and a low payment.

Switching cell phone carriers can cost money

Cell phones come with their own rules, which often include an early termination fee, activiation fee for a new line of service, and buying a new phone to go with your new company if you’re switching to save money. Depending on your credit, you may have to pay a deposit as well.

It sounds good on the surface, but once you do the math, it’s a lot less useful than it seems.

What will ACTUALLY save you money?

Instead, if you’re renting, you can try talking to your landlord about lowering your rent, but it’s not likely to happen. If you own your home, refinancing may be an option – same goes with the car. You can cut back on the extras on your cell phone plan or switch to a cheaper plan if your carrier will let you. And ask your cell phone carrier if they offer a discount for where you work; there are lots of discounts available if you ask for them.

Rule Number Three – Pay your credit cards on time, and negotiate with the card companies for better interest rates and payment arrangements

I understand the reasoning behind this – you don’t want to accrue late fees or get a higher interest rate by paying late, and sometimes, credit card companies will lower your interest rate if you ask them to and your credit is good. But if you’re really broke, this is stupid.

Credit card payments are not paying for your needs

stack of credit cards
photo by Andres Rueda

If making the minumum payments is a financial hardship, you can’t afford to pay more than the mimimum, and your financial situation isn’t going to improve in the forseeable future, working with the credit card companies isn’t doing you any good. At best, it’s a way to tread water; at worst, all you’re doing is digging yourself a deeper hole. Making the minimum payments isn’t going to pay the balance down, so it’s not like the cards are getting paid off someday and giving you some relief you can look forward to. And the first time you pay late, for whatever reason, the late fees and higher interest are going to undo any progress you may have managed to make.

What to do about your credit cards

Instead, if you can’t afford the minimum payments, stop paying them. Yes, your credit is going to take a huge hit, but if you’re really broke, good credit isn’t going to do a damn thing for you. You can’t afford to take on new debt anyway, and no one is going to give you credit based on your income to debt ratio. Yes, the credit card companies, and eventually collection agencies, are going to call you every day to hound you about payment. Change your phone number, block their calls, or simply pick up and hang up – if it’s really bad, tell them in writing to stop calling, and they have to.

What about your credit score and your financial future?

After this, you have two options. You can file bankruptcy if your situation doesn’t improve and you can’t see yourself being able to pay your debts any time soon. Or, if your situation DOES improve, you can contact all of your creditors, make arrangements to settle your debt (which often includes lowering the balance due), and pay your debts later when you have the money if your financial hardship turns out to be a temporary setback. But paying them now when you can’t afford it is an unnecessary expense and strain on your household.

The one rule you’re missing – Lose your pride

Your pride is not going to pay the bills. Money is.

Don’t be too proud to ask for help. Don’t be too proud to look poor by buying cheaper clothes, taking a sack lunch to work, or cutting back on your leasure activities and personal luxuries. When your friends want you to go out with them, don’t be too proud to decline because you can’t afford it.

Questions? Comments? Arguments? Please share.

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Pam is a preschool teacher and writer with a background in psychology and child development. She's available for freelance work, private consulting, or just a nice chat. Connect with her on Google+, Twitter, Facebook, or via email at p.komarnicki AT social-discomfort DOT com.

2 Responses to Budgeting When You’re Broke – All the Rules You Need to Break, and the One Rule You’re Missing

    • @fbr
      Glad you thought it was helpful. I couldn’t believe reading through all sorts of other budgeting advice and not one of them addressed that issue. You have to do more than just try to change your habits; you have to change your mindset as well. If you don’t change the way you think about money, you’re not going to change how you use it.

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