When there is more month than money

I'm Out of Money

by Gary Foreman

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I already buy items on sale. I don't make extra trips in the car. I do two or more errands during the same trip. I don't eat out, go to movies, rent movies, travel, etc. I can barely pay my current bills and have medical expenses as well. What help is there for folks like me?

Like so many of us, Frustrated watches how he spends money. He even makes sacrifices. Yet, at the end of the month, there still doesn't seem to be enough money.

How can he decide what to do about it? He won't know until he determines what is causing the problem. And, the best way to do that is to get an idea of where his money is going. We'll start by looking at two areas that can unbalance any budget: housing and autos.

Housing should not consume more than 35% of your take-home pay, automobiles less than 20%. That includes not only your mortgage and car payment, but also other related expenses like utilities or gasoline, insurance, maintenance, taxes and registration.

It's easy to spend more on these areas, especially with car dealers and real estate agents telling you that you can handle it. But, if you spend more, you'll have less available for other areas. And, to complicate matters, once you've bought a house or car, it's hard to reduce that expense. Often, the only option available is to sell the home or car. That's a major decision for any of us, and probably an uncomfortable one.

The third major expense in any budget is food and groceries. Obviously, a growing family will spend more than a single adult will spend. Every family is different, but about 20% of take-home pay is a reasonable boundary.

Fortunately, if Frustrated spends too much on food, it's more easily fixed. The reason is simple. Instead of making one big payment each month (like your mortgage), you make many smaller decisions every day. So you have many opportunities to cut spending. Granted, they're small opportunities, but they do add up.

In our busy world, it should be no surprise that we often don't have time to cook for ourselves. According to the U.S. Statistical Abstract, about 40% of our grocery budget goes for food prepared outside of our home. That adds to its cost. Frustrated will want to check out things like freezer meals, planned leftovers and price books to reduce his grocery bill. Information is readily available on the internet and here in the Dollar Stretcher library.

Between housing, automobile and food, Frustrated should not spend more than 75% of take-home pay. That leaves 25% for everything else including clothing, medical, entertainment, vacations, debt and savings.

These areas tend to get out of whack through either one major expense (like a medical emergency or big vacation) or through regular small, routine spending. A weekly trip to the mall doesn't seem dangerous, especially when you only come back with one item. And, it was on "sale" besides. But $50 a week becomes $2,600 in a year. And, if those purchases go on a credit card, the interest makes it that much worse.

Am I a good candidate for credit counseling?

You don't even need to go to the mall to get in trouble. You might be ruining your budget without leaving your home. Home shopping channels or online shopping has made it easy to spend money without going anywhere near a retail store.

Frustrated might have pointed to his problem. Past bills (think credit cards, student loans and medical) must also be paid out of the 25%. Debt repayments that take up more than 5% of your take-home pay will require cutting things like housing and autos.

Frustrated might find that talking with the lender would help. If you show them that you're spending cautiously, they might be willing to reduce your payments. Most would rather see Frustrated on a more lenient payment plan than declaring bankruptcy. In some cases, a credit counseling firm can help, especially when the debts are primarily due to credit cards.

Finally, Frustrated might really be doing all he can to reduce spending. If that's the case, he'll probably need to consider making a significant lifestyle change. That might mean moving back in with parents, sharing an apartment or moving to a less expensive part of the country. He might need to consider additional training or even a change in career to obtain higher paying work.

The good news is that Frustrated can figure this out on his own. All he needs is his pay stub, checkbook, credit card bills and a calculator. He doesn't even need to do a full budget. Just compare a few simple expenses to his take-home pay. Hopefully, he'll find the problem area and a workable solution.

Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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