You might have read that I’m kinda a bit of a budgeterian. I believe in the B word. It’s been working for me and my family for over 2 years now.
Life on a budget is a choice. Once you accept it and agree to it, it really can work for you and become part of your lifestyle.
Even wealthy people budget, heck, how do you think they got all that money? Not everyone is fortunate to win the state Lottery, Megamillions or Powerball! So for those of us who don’t have winning numbers in hand, or stupidly rich aunts and uncles to leave their unspent fortunes to, there’s plain old BUDGETING!
I’ve been asked on more than one occasion, from those who are on a budget and are using my service as an accountability partner, “If it’s OK to take on another bill, and add it to their budget, for something that isn’t quite an emergency.”
Let me preface 2 different scenarios: Both families are already over budget on their monthly bills, meaning that they make less than what is needed to cover current living expenses. However, over the past few months they are making progress in getting not only out of debt slowly, but not regressing to their old ways. (No new credit purchases, and curbing unnecessary spending.)
ONE Family one recently had a car accident, totaling the family vehicle. No major injuries and luckily received a generous payout from their insurance company claim.
This family had a fairly manageable amount of credit card debt that they were already in the process of paying off. Minimum monthly payments keep the collectors from calling, but don’t do much to the overall amount of your debt. Credit companies make money on the interest you pay them, every month.
A majority of that insurance check paid off what was still owed to the bank for their totaled car. A small bit was left over to put towards a replacement vehicle. Their question to me was, “Can we get into a new vehicle, with an OK interest rate and payments only a little more than what they originally were paying.”
My response, “NOPE, NOPE, NOPE.”
Reason: They were already over on their monthly budget. The car payment, now gone, was a minor financial relief. The lack of a car payment now brought them to a point of budgetary break even. They had a small bit of money from the remainder of their insurance payout check. I suggested they shop around and get a less expensive car, but most importantly to buy it outright with the remainder of their insurance money. This way, they wouldn’t incur any additional debt, and their new monthly car insurance would be even less! This additional “found money” would help them to also pay off the $5000-ish in credit card bills that they still had.
This vehicle was really a means to get around safely, not to impress the Jones’. Sure it may not have been the prettiest, coolest or most impressive vehicle on the road, but it would be paid for. After all it’s just a car, and there’s no need to go into debt over it. Many used vehicle dealerships have clean cars with good mileage. You just have to shop around. Find something that is safe, and has good reviews, and go to a reputable dealership. You have more negotiating power with cash in hand over any financing situation.
Then once ONE family was debt free, which would take about, 2 years, they could then save up for a newer vehicle if needed. Again, budgeting for it, save up and then pay cash and not financing it. 🙂
Family TWO was also over budget every month. Between having kids and not making enough at their 9-5 jobs, they were stretched beyond their means. As a parent, I understand how difficult it is to have to scale back on your child’s extracurricular activities, so that usually means putting things off for yourself instead, in an attempt to afford it all. Part of being on a budget is to live within a set goal of allowed spending and to not live beyond your means. This family still had a large amount of debt to tackle, PLUS 2 car payments. Their question to me was, “We want to get some dental work done, and can put it on a zero interest account through a credit company. Can we just add that to our current budget?”
My response, “YOU CAN’T AFFORD ANOTHER BILL.”
Reason: Family TWO was already living well above their means and had substantial credit card debt. They brought in less on their monthly income than what their current actual monthly bills were. After getting a budget plan in place they were slowly starting to make some progress. Receiving an income tax refund, helped to propel them in a positive direction. With that and some careful monthly planning, coupled with some massive over time hours, they were almost making enough and nearly at break even. Every little bit helps.
However they still were over budget every month and the overtime wasn’t going to last forever. Sure, getting some dental work was needed, but they couldn’t afford an additional monthly payment on their budget. Even if it was only $5, which it was not. The $50-$100 additional bill each month would put them further into the red. However there was a bit of a silver lining. They were nearing having both cars paid off. If they could just hold off on any additional spending for the next 6 months, they could then plan to utilize a portion of their budgeted car payments towards their upcoming dental expenses.
Sure my response might not have been what they wanted to hear, but the end game and goal to budgeting is to not go further into debt. Plan how and when to spend it, and do it wisely.
At the end of the day, it’s all about creating good and sound spending habits.