Broke Before Payday? A Solution That Could Help

Posted by in Articles, personal finance | 17 comments

I’m going to change things up a bit with the way I post, sort of along the lines of a series. Though, to be honest, I’m horrible at following through on series-based posts. So, to start my problem/solution posts out right, I’ll include a link in my navigation that will organize my series making it easier to find them (and a reminder to myself to keep it going!).

The Scenario

Every two weeks, your pay check gets deposited directly into your bank account and you’re flush with cash. You feel giddy at the sight of those dollars and cents appearing in your bank account. However, after paying a few bills, some which may be past due, your bank account is nearly on empty and that euphoric feeling you had just days ago has now turned to angst. Not only is your bank account precariously low, if any emergency were to pop up you’d be near bankrupt, or at the very least, in a financial pickle.

Confronting the Problem

It’s not uncommon to first blame a low paying job as the reason you’re constantly broke before your next pay check arrives. If you aren’t the only once accessing your accounts, you might even blame your significant other for being the spend-thrift.  But the real reason you’re broke between pay periods is that you haven’t been tracking your spending or income. Your cycle might look something like this:

  • Payday comes- pay all the bills that have been piling up. This might also include an overdraft or two and a late charge.
  • Payday goes – most of your money has been spent keeping up with your bills. You barely have two nickels to rub together, but somehow you can still afford to eat lunch out with the girls.
  • Reality sets in -you’re tired of feeling broke all the time. You know you make enough money; heck you’ve compared your income with your friends and it’s not all that different. It’s time to make a plan.

Finding the Solution

The solution doesn’t need to be complicated. It’s a matter of sitting down and figuring out what bills you must pay, what expenses you’d like to keep, and what needs to be eliminated. This is called making a budget. Using an excel spreadsheet works for me, but you might want to give Mint.com a try. By tracking your expenses, you see first hand where all your money goes each month. A few good steps to follow include:

  • Track your expenses – find out where your money is going. Are you eating out too much? Are you spending too much on your cell phone plan or on cable television?
  • Make a budget – calculate your monthly expenses, both needs and wants. If you’re not sure, estimate certain items, but once you’ve tracked your expenses, go back and revise the estimate to an actual amount.
  • Take your income into account – now that you know how much you need each month to live comfortably, add in your income. Will it cover all of your expenses? Can you increase your income by freelancing?
  • Start a savings fund - by having a few dollars saved up in an account helps alleviate some of the stress of an empty bank account.

This isn’t meant to be a one-size-fits-all plan, just a good starting point if you’re ready to begin working on becoming financially responsible. Look for my next problem/solution post on ways to start a savings account.

How have you overcome a financial problem? Did you ever feel broke before payday and realize it was because you weren’t keeping track of your expenses? What topic might you like to see covered in this series?

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17 Comments

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  1. Eliza from Happy Simple Living

    This is a great topic and I’m looking forward to reading your series. I can well remember the feeling of being broke before payday when I was in my 20s and it was no fun at all. And yes, somehow I could always squeeze a little money out for lunch at a restaurant or a beer with friends! :-)

    • Little House

      @Eliza – It’s funny that most of these experience for me were also in my 20′s (confession – even in my early 30′s!) I’m so glad I’ve figured out how to budget, it makes my life less stressful!

  2. Dave

    I agree that the first step is tracking your expenses. Some people start out by trying to make a budget without a clue as to where they spend their money! Tracking spending for a month can be quite an eye-opener.

    • Little House

      @Dave – When I first tracked my expenses, I was shocked at how much we were spending on eating out. I immediately started making a point of brown-bagging my lunches and eating breakfast at home, while skipping the bagel from Starbucks. It saved me easily $75 a month!

  3. First Gen American

    This sounds like my checkbook around Dec/Jan time frame. For me, keeping track of things on a regular basis helps me understand when/why I need to reign in spending or make an effort to increase my income through things like selling stuff, etc.

    • Little House

      @First Gen American -I’m constantly tweaking my budget based on my actual expenses. Seeing how much I’ve set aside for certain items, then comparing what I’m spending helps me be more realistic. I initially allocated $125 to meals out, but realize I need more like $165. (not bad, but it’s still $40 bucks more!)

  4. Cia

    Our family decided to go on a CASH ONLY basis for a couple of months. Seems like when we holding it in our hands and physically watching it go, makes the morning latte’ and lunch out a little less attractive.

    • Little House

      @Cia – Cash-only works great if you’re trying to reign in spending, especially if more than one person access an account. I tried using cash for certain items this year, but realize I do better with my debit card – as long as I check purchases every other day and record them in my Quickbooks.

  5. retirebyforty

    We have an emergency fund buffer so I don’t feel like we are living pay check to pay check. The last time I felt like that was in college and I wouldn’t want to go back there. It’s too much stress.

    • Little House

      @Retireby40 – It’s funny, but during college I never stressed out about money. My expenses were low, I had NO debt, and I always had a little bit of money saved as a cushion. It wasn’t until I was finished with college and my expenses started to increase that I fell off the proverbial “wagon”. I’m just glad that I’ve now found solutions through budgeting that work.

  6. Moneycone

    That’s a great suggestion Cia! I did this as an experiment a while back and I definitely found myself spending less.

  7. Pat S.

    Great points! I think we’ve all been there before, and hopefully most of us are digging our way out of that cycle. The keys for me have been a little cushion in checking (though not too much because of the low interest rate), and a decent emergency savings in an online account.

    • Little House

      @Pat S. – I’ve opened up a small savings account that links to my checking account. It’s easy to transfer money when I need to and it acts as an overdraft account. I hate the lower interest rate, but it’s worth the peace of mind. I also have a higher interest online savings account, but it takes up to 3 business days to transfer money. It’s great for longer term savings, but not so good if I need to access that money quickly.

  8. Edwin @ Cash The Checks

    It’s a real eye opener when you do your first detailed budget and you begin to track your expenses. You can really see where you’re needlessly wasting money.

  9. Hank@eblucigs.net

    Simply calculating how much you spend each month on your debts will illustrate that eliminating debt is the fastest way to free up money. Once the money is freed from debt payment, it can easily be re-purposed to savings. Plus, the sooner you pay off debt, the less interest you’ll pay, and that money you can be saved instead.

  10. Bencage

    Payday Loans are an asset when facing hard times. Let’s face it. America has fallen on hard times with the onset of the current economic crisis.

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