Week-by-week and paycheck-by-paycheck, managing money and paying off debt seems increasingly more challenging. You try to pay your bills, but there are too many left at the end of the paycheck and you find yourself trying to perform a balancing act to keep the creditors off your back for one more week.
So, you have $40 left and the electric bill for $60 and the water bill for $50 that are due this week – how do you pay it? Do you pay the smallest bill and that way you’re only behind $10? Do you pay $40 to the electric company to keep your lights on? Do you pay $20 to each and hope it keeps them pacified? Do you not decide not to pay something else and use that money to make up the difference?
A lot of people “rob Peter to pay Paul” – they shift money around, they play a slight of hand and make it seem like they paid more of their bills than they really did.
I have robbed Peter to pay Paul before, quite a bit actually, and it worked great for a while until I realized that all I was doing was spinning my wheels.
How to stop robbing Peter to pay Paul
If you are serious about wanting to get your finances under control, you need to do something drastic. How drastic? Let’s break it down into a few steps:
Step #1: A Budget Is A Must Have
There are a lot of misconceptions about budgeting out there – such as that it’s difficult, or too time consuming, or too depressing. I’ve heard people say that a budget makes them feel too controlled. They don’t want to be controlled.
Here’s the funny part, a budget doesn’t control you, you control it. You get to be the boss of your income when you tell it where to go.
We’ll go more into how to organize your budget in a future post, but for now, let’s start with listing your income and then listing all of your bills and when they are due.
Step #2: Track Your Money
This one is probably the most drastic, it’s simple but drastic. It works for the people who are visual learners and those that are analytical thinkers. Here’s the best way to track your expenses:
1) Get a pocket sized notebook, one that can easily fit into your pocket or purse, you’ll want to have a pen or pencil too
2) Carry it with you EVERYWHERE for the next 30 days
3) ANYTIME that you spend money over the next 30 days, it goes into that notebook
This means, when you pay your bills, when you grocery shopping or go out to eat, when you buy a candy bar from the vending machine.
30 Days is no that long, but at the end of that time, you’ll have a notebook that shows where every single penny of your earnings for that month has gone to.
A side perk of this one is that after a few days, of tracking EVERYTHING, you’ll start to consider “do I really want to write this down in the notebook?” and for that reason alone, you decide not to spend the money. A penny saved is a penny earned!
Step #3: Eliminate Waste
After 30 days of tracking you’ll have a physical list of ways that your hard earned money played a disappearing act. You can now go through that notebook and play a game that I call, “Was it worth it?” Go through that list and separate your expenses into three categories: Necessities, Luxuries and Extra Spending.
Necessities are things like your rent or mortgage payment, your utility bills, food (within reason), and clothing (within reason) – these are things you really cannot eliminate from your budget.
Luxuries are the things we really like, and may use regularly, but if absolutely necessary, could do without. This would be things like your TV provider, your cell phone plan, your internet service, etc.
These are things that you may want to eliminate altogether or you could:
a) negotiate the costs with your provider
b) see if there is a less expensive way of using these services
c) could you package them all into one deal?
Impulse Spending – you know what these items are… the candy bars at the vending machine, your extra grande mochacinno double foam soy lattes, going out to eat multiple times per week, etc.
Let’s get one thing straight about when it comes to budgeting and getting your financial life together – it’s not about taking the things you enjoy and never doing them. It’s not about saying you can’t have Netflix AND Hulu – it’s about changing the way you view your spending and making your money do what YOU want it to do.
My biggest “impulse” happens to be coffee – and I’m not a fan of the regular Folger’s Breakfast Blend, I like the kind that are usually between $4-$5 each and handcrafted by a skilled barista. When I completed my very first 30 Day Money Tracker in 2006, I found that I was spending between $60 and $70 per WEEK on coffee. The people at the coffee shop(s) knew my face, my name and my preferred drinks – they even knew I have a tendency to change it up from time to time and got to asking me, “Which one are we doing today?”
When I took control of my finances, I had to decide which was more important, my spending habits or my caffeine habits. I quickly learned that I could add an item into my personal budget that was just for coffee. I would allow myself only so much per paycheck and when it was gone, it was gone until my next pay day. For what it’s worth, I allowed myself $20 per paycheck for coffee, that averages to about 2 cups per week. An immediate savings of $40-$50 per week that I built back into my budget
What does my coffee drinking habit have to do with Robbing Peter to Pay Paul?
That $40-$50 that I “found” in my budget, went a long way towards balancing my budget as a whole.
When I first started budgeting, I was running in the red. I had a lot more outGO than INcome. The fact that I was staying afloat was by the Grace of God.
By completing these three simple steps : A basic budget, Tracking my expenses for 30 days and then Limiting or Eliminating impulsive spending, my income seemed to grow and I was suddenly able to pay both Peter AND Paul – the lights AND water could stay on – and I was still able to enjoy my favorite cup of coffee without breaking the bank.
Side note: I want to make this blog interactive. I would love to hear your stories of financial successes, financial challenges, budgeting questions, etc. Please feel free to share these stories at: firstname.lastname@example.org
Your questions/stories may be used in a future post. If you wish remain anonymous, please tell me.