You never thought you would end up in this situation. You were careful and conscientious about how you spent your money. You had savings, a decent credit score, and good spending habits.
Then, you ran into a major health problem. Or you lost your job. Or you cleaned out your savings to pay for car repair.
Now, you’re in serious financial trouble, and you’re about to run out of money.
You can take control of your money if you know what to do. Here are five steps to take if you’re dangerously close to running out of money.
1. Take a Deep Breath and Identify Stress Points
First, take a deep breath. Take an even deeper breath.
It’s terrifying, but it’s important to remember that this situation is temporary.
This seems like a simple step, but it’s vital to your financial recovery. If you lose hope, it’s easy to resign yourself to a bad situation and quit fighting as hard as you should be.
You can do this. Keep your chin held high and stay the course.
Once you’ve taken a long breath and settled down, you need to identify your stress points. Write down the three (or four or five) biggest sources of financial anxiety you’re facing at the moment. Identify what about them is stressing you out and how they got to be so bad.
2. Build a Budget
A budget is the best weapon in your debt-fighting arsenal. Basically, it’s a plan for how you spend your money each week/month/year. This way, instead of eyeballing your income, you know exactly how much money you have to work with.
Most people think of a budget as a way to control saving. But it’s also a way to control spending. So don’t eschew a budget if you’re convinced all your money will be lost to bills anyway.
Not sure where to begin with a budget? The next two steps will help.
3. Total Up Your Outstanding Bills
To get started on your budget, total up all of your outstanding bills and debts. This includes things like:
- Rent or mortgage
- Car payments or transportation costs
- Tuition payments or school fees
- Pet fees (veterinary care, food, grooming, etc.)
- Credit card debt
- Student loan debt
- Recurring expenses, like buying a coffee every morning or a gym membership
This step can be disheartening, but it’s important to know exactly how much money you owe. From there, you can ask yourself:
Do you have enough money remaining to pay off all of your bills?
If not, how much money do you still need?
Can you partially pay off any of the bills? What about payment plans?
Are any bills late already? Are they accruing interest fees?
Ideally, you should try to pay off as much as you can while still leaving enough money to keep a roof over your head and food in the fridge.
4. Prioritize Spending and Freeze the Rest
This brings us to our next point: prioritize your spending and freeze everything else.
In totaling up your expenses, you’ll probably find expenses that you don’t need, like that morning coffee, your gym membership, or the occasional lunch out with coworkers. You need to cut those expenses out of your life.
Take that coffee, for example. Let’s say it costs $2.45 for a plain black coffee (the cost of a venti freshly brewed coffee at Starbucks). If you buy one every morning you go to work (five days a week) that costs you $12.25 per week. Over a year (52 weeks) that costs you about $637 per year.
Or, take a look at your gym membership, which is usually between $40 and $50 per month. That costs between $480 and $600 per month. With the initiation fee, that usually comes out to $800 per year.
Just by cutting your gym membership and making coffee at home, you can save between $1,117 and $1,437 per year. Think about how much faster you could cut down your debt when you eliminate more unnecessary expenses.
Once you have a complete list of expenses, freeze everything nonessential. Don’t buy a single coffee, don’t give your kid a quarter for the gumball machine. Every last dollar adds up, and when you’re just this side of broke, you can’t afford to waste a cent.
5. Identify Small Steps and Last-Ditch Options
From there, you can identify small steps you can take to steadily eliminate your debt.
In general, this boils down to some combination of two things:
Take groceries, for example. They’re a necessary expense, but there are many ways to make your food costs cheaper.
Start by looking for a cheaper grocery store and meal plan aggressively. Don’t buy anything that you haven’t factored into a specific meal on a specific date–this cuts down on food waste and ensures that you only buy what you plan to use.
You can also check out your grocery store’s pull days (when they reduce the cost of items for clearance). Shopping later in the evening on pull days is a great way to find decent produce for cheap.
If you still need lower food costs, check out Feeding America to find a food pantry near you. Food pantries should be your go-to source for bread and produce every week. And if you can’t afford groceries without help, don’t be afraid of looking into food stamps.
If you’re truly desperate, you should also look into last-ditch options to keep in your back pocket.
A guaranteed payday loan is one way to get cash quickly, but you should try to avoid taking on debt to pay off debt if you can. The safest loan is from family or friends, but that depends on how comfortable you are with asking.
About to Run Out of Money?
If you’re about to run out of money, take a deep breath.
It’s terrifying, but it will be alright. You just have to take stock of the situation, make a plan, and stick to the plan religiously.
If you need more tips on managing your debt, check out our blog for more useful posts, like these five ways to improve your financial situation.