Can You Relate?
Is it just me? Or, can anyone relate to the terror and sinking feeling of logging into your bank account and being surprised there is an overdraft charge? How many have had to make all kinds of frantic calls to the bank to plead your case or down right swallow your pride and beg for mercy? How about borrowing money and rushing to the bank to put it in before the transaction moves from pending to posted? Or, how about calling that merchant or creditor and having that uncomfortable conversation?
Is it just me? Or, who else has had to just eat it the charge, undisputed, because the hard truth was we deserved it. We mismanaged our money. We tried to play the timeline game and lost.
The Timeline Game
You know it. It looks something like this. I have a quarter tank of gas. My commute is 20 miles one way. I need gas to make it to work the next couple days. I only have $3.00 in my account till payday. I get paid on the 15th. It’s after 5 pm on the 13th. Gas costs $2.89 per gallon.
My direct deposit hits, at midnight, like clockwork on the 15th. So I go to the BP because the nearest QT is too far. So, I buy gas using credit instead of debit (since you only need $1.00 available to be authorized at QT, I assume it’s the same at BP). I get $25.00 worth of gas.
I look at my account on the 15th and it’s overdrawn. What happened? Oh. BP is not the same as QT. They only take 24 hours to clear credit transactions whereas it takes QT a reliable 48 to 72 hours to clear credit transactions. What happened? I lost the timeline game. And, I lost a bit of peace. Sound familiar? And let’s not even talk about the brief moments of co-mingling business and personal funds because you are so broke. We will save those cautions for another post. Have a Plan for Your Spending
Some habits are hard to break. And for many of us, especially in rural and urban poverty centers, our money habits are formed quietly watching our parents and elders manage (or mismanage) their money.
What I’ve noticed, as I was forced to deeply examine my upbringing and my family’s financial history and habits, was being reactive and impulsive in spending was the quiet model (i.e., how many things I can buy before my balance is zero). Proactively having a plan for spending (e.g. a budget telling my money what it will be doing each month) was not the trend.
Also, chronically making payments was modeled as the means to acquire what’s needed instead of exercising patience to save up in order to pay cash. Although, the catch 22 for many in these poverty centers is we didn’t have time to be patient. The refrigerator goes out, the hot water heater breaks, the car dies–we need an immediate solution.
Paying cash for things like cars, appliances, furniture didn’t register as possible for my family. It was the exception not the rule in my rural neighborhood. Either the need (lack of ample cash flow) demanded we take the financing option or being patient to save was not appealing.
The only quasi-plan for spending was for utilities and housing. But, often because there was over-spending in other non-essential areas (satellite TV, car payments, furniture, appliances or Murphy’s Law came to visit) we robbed Peter to pay Paul, every month.
The going thought process was always, “Do I have enough to make the payment?” And, we would keep racking up payments for things–until payments ate all of our income. Any extra income was seen as a blessing and green light to go create a new payment (i.e. debt).
More Month Left at End of Your Money
For example, say we have an income of $1000 per month. Say we insist upon living alone instead of with roommates, so our monthly rent is $500.00 instead of $175.00. Say we insist upon having a car instead of using transit. Or, if in a rural area, we insist upon having a car “right now” instead of saving up a couple thousand dollars to buy one cash. So, we add a car payment of, say, $250.00 per month.
Now, we need car insurance–a payment of $100.00 per month. Then we tell ourselves we must furnish the apartment so we go to a rent-a-center and furnish the entire apartment for a payment of $75.00 per month. These expenses leave us with only $75.00 for the rest of the month.
While making our “payment” commitments, we forgot we still have to eat, pay utilities, wash clothes, put gas in the car, and if we are lucky, experience pleasure (like a movie, or a weekend get-away). Now, we go through each month frantic and stressed-out because we keep having more month left at the end of our money.
The typical solution is to borrow and play the timeline game. Some resort to shady or criminal solutions to make it month to month. That is until we–make the decision to shift our mindset and learn how to properly handle money. This scenario may sound very extreme, exaggerated, or frankly, pitiful, to some readers.
But, unfortunately, it is an all too common scenario playing out, almost verbatim, in many American households–especially those living in rural and urban poverty centers. And to my chagrin, it’s been a scenario I lived. It takes one to know one–right? I mean how can I be so descriptive?
The result of managing money like this is chronically overdrawn bank accounts and frustration. And if we are not careful, we will develop a victim self-pitying mindset that can make this scenario our permanent reality.
But don’t you dare feel hopeless and despair if this is where you are.
Again, I’ve been there not too long ago–and much to my chagrin. There a is a better way. If you can be gentle and patient with yourself, you can turn things around and get this area of life under control.
A Better Way
Here is an example of a better way to live in the same scenario above with a $1000 monthly income. First, you learn that your housing, transportation, food, etc. expenses should be a certain percentage of your income. Financial experts suggest 25-35% of your income be set aside for housing. That’s $250.00 per month. So renting a room, or getting a roommate or two would be the best choice over living alone.
Having that valuable information would have alerted me that I should NEVER commit to renting an apartment that is 50% of income (net or gross as $500 is half of $1000.00). You would follow the same guidelines to figure out the rest of your expenses.
The Credit Counseling Society publishes a guideline of suggestions on how much you should spend on each living expense as a percentage of your take home (or gross pay). Below is a graphic of their recommendation.
Upon adopting these (or similar guidelines from a plethora of authority sources online) guidelines, you can then go out into the world and make sound purchase decisions instead of on preferences you can’t afford.
Living Within Your Means
For example, if I followed expert guidelines, got roommates, paid $250.00 for housing and decided to take transit instead of buying a car, then that strategic choice would leave me $750.00 in the black each month instead of only $75 fast approaching the red.
And even if I decided to treat myself and splurge on financing some cute furniture for my new place, then that would still leave me, comfortably, in the black with $675.00.
This is a very simple example of what sacrificing to live within your means looks like practically and the difference it makes to your monthly bottom line. For, it’s really all about personal financial literacy and the choices we, courageously and sacrificially, make to apply the education we receive.
About The Discipline of Budgeting
Don’t let the idea of “tracking your money” intimidate or stress you. Keep in mind, budgeting is NOT an exact science. It does change from month to month sometimes–especially if you are a freelancer or independent contractor. Your income may go up or down each month.
The point of a budget is to have a plan for your money BEFORE you get it in your hand. You may run over an assigned percentage until you get yourself disciplined. That’s okay. Just start. You just need to be as close as possible to the designated percentage until you develop the discipline and routine to start hitting it precisely.
Fellow debt elimination crusaders, Leave Debt Behind, share another useful list of expense guidelines, sourced from the U.S. Bureau of Labor. This is their national average of expense category percentages based on net income. Note these guidelines give you a range of the housing expense category as opposed to the recommendation in the pie chart above.
Budget Tip #1: The Envelope System
Another simple tried and true solution is something called envelope budgeting system. It is an almost fail-safe way to prevent overspending and stick to your budget (or money plan if you don’t like the word budget). Dave Ramsey’s Total Money Maker Over has popularized the envelope system as it’s the main feature of his program and consulting.
But really, the envelope system is an old school money management technique. The video above, courtesy of Goodbudget, illustrates what it looks like in practice. So check it out and learn how to implement this method into your budget. For, this system compliments the Goodbye Broke Emergency Fund Challenge. For example, you can designate an envelope for your emergency fund to ensure you don’t forget to save (i.e., pay yourself). So, give it a try and let me know what you think of it.
If you found this post helpful or know someone who could use this information, then please share it with your tribe. And don’t forget to shout me out on social. You can find me across all social channels like Twitter, Instagram, Facebook @goodbyebrokegirl and on Snapchat by searching my name Latisha Grady | Goodbye Broke or @latishapreneur. And, don’t forget to challenge yourself and build your emergency fund; sign up below.
Until next time….