Ten tips for budgeting when you’re broke

by Nick on February 27, 2012

Happy Monday peeps!  I’m writing this post before my fancy-pants-open-bahhh wedding (just in case…) so I may not actually be feeling as “chipper” as the post makes it seem, haha.  Anyhow, today’s post is about the dreaded B word (no, not that one gutter brain!).  Actually it’s about two dreaded B words:  budget and broke. 

Budgeting is simple (well, budgets that work are simple… budgets that fail are usually pretty complicated).  And budgeting is the only fool-proof way to “beat broke.”  Broke sucks.  But broke is temporary, as long as you budget…

When I first started my gig out of grad school I had $4,000 to my name, over $100,000 in debt and three medical bills mucking up my credit report (story for another day, but I successfully challenged them). 

Since then (September 2004), a written budget and relatively low standard of living have directly resulted in turning my net worth from more than $100,000 in the hole to one that is significantly more (percentage wise) than my annual salary, in seven and a half years.  Not too shabby, if you ask me…. But the post is not about me….

If you are where I was back in the day, there’s definitely hope.  Just ask Investopedia, who posted ten tips for budgeting when you’re broke over at Yahoo! finance.  I definitely did most of these when I was battling broke and it’s all pretty good stuff, in my opinion. 

Let’s dig in, along with my obligatory two cents. 

  1. Avoid Immediate Disasters.  Nothing kills progress faster than a disaster.  Call all of your creditors with whom you’re current and see what kind of relief they can give you.  (You probably don’t want to do this with the ones that are old bad debts because they’ll likely start harassing you if you wake them up.  So I’d focus on the relatively current ones and the ones that are harassing you.)  I had one of those no interest and no payments for 12 months credit cards that was about to expire and was able to get the no interest or payment period stretched out for over two years.  Sometimes asking for a little relief can help you gain some traction.
  2. Review Credit Card Payments and Due Dates.  This is similar to #1 in my mind.  Get current on everything you can.  Adding penalties, interest and late charges for missed due dates is inexcusable.  Get a pad of paper or open a spreadsheet and list your payments and due dates.  Or put them in a calendar.  Then make sure you keep up with the minimums even if you need to sell something, cool?
  3. Prioritizing Bills.  Know anyone who is behind on their mortgage or rent but current on credit cards?  That’s messed up.  Usually it’s because credit card collectors harass you more than you get for being behind on your mortgage or rent.  But seriously, take care of your family!  Don’t let them get to you!
  4. Ignore the 10% Savings Rule, For Now.  This is a really tough one, but I think it’s the right decision.  Both from a “return on investment” and “making progress” perspective, having $50,000 in savings and paying 29% in credit card interest doesn’t make any sense, right?  Have a few emergency bucks set aside and then pound down the debt!
  5. Review Your Past Month’s Spending.  How much did you spend on groceries last month?  How much on work lunch?  Clothes?  Not knowing is a big problem when you’re trying to beat broke.  We thought there was no way we had waste in our budget back when we were just starting out.  But we reluctantly tracked every penny we spent for a month.  Turns out we were spending over $500 per month in restaurants.  Nuts.  (That quickly stopped…)
  6. Negotiating Credit Card Interest Rates.  Just ask.  If they say no, hang up and call back again.  Ask the next guy or gal who answers.  Wash, rinse, repeat.  Usually you’ll get a “yes” within 5 times.  Try different techniques with each call, too (friendly, super friendly, desperate, supervisor, asking what else they can do to help you, etc.)
  7. Eliminate Unnecessary Expenses.  To a certain extent this falls in the “falling behind on your mortgage to pay Visa” category, but replace “pay visa” with “eat at restaurants instead of at home” or “go to the movies in the theater” or “go on vacation.”  Remember, there’s a big difference between “wants” and “needs.”  I’m talking to one of you readers in particular here… you know who you are… 😉
  8. Journal New Budget for One Month.  I’m a bit more extreme than these guys.  So I’d say journal your new budget until your budget is second nature.  This is probably more like 3 or 4 months, though.  The longer you journal your spending the quicker you’ll beat broke.
  9. Adjust Spending as Needed.  Duh!  But taken together with #s 5 and 8, it makes sense and shows exactly how to get going with a budget.  Step one: Journal your spending.  Step two: puke on your shoes after you see how much you’re spending at restaurants.  Step three: wash your shoes and clean up the floor around it.  Step four: write out a budget adjusting your spending on unnecessary expenses (like sleep away camp… that’s right… said it again).  Step five: work the budget for a month, keeping track of your “new spending.”  Step six: adjust again.  Repeat as necessary (hopefully with less puking).
  10. Seek Out New Sources of Income.  Ahh… the forgotten half of the equation.  You can only decrease spending so far.  Increasing your income is literally limitless (see: Bill Gates).  So you need to do both.  Get a part time job or sell stuff and put all that money towards cleaning up the mess.

I was broke not that long ago.  I got married.  I had two kids.  I worked my tail off, got raises every year, stuck to a budget and kept my standard of living as low as possible.  Now, although we’re still cleaning up a mess or two, we have a solid foundation and a plan.  And we’re not broke.

What steps worked for you?  Anyone just getting started?  Track your spending for a week or month and then let me know what surprise waste you found!  And what steps are missing? 

Until next time, put your credit card down and slowly step away from the mall!

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Image: ponsulak / FreeDigitalPhotos.net

{ 12 comments… read them below or add one }

addvodka February 27, 2012 at 2:01 pm

All great tips. Refocusing my priorities was a big part of what got me out of debt when I first got in it, but I was never super, super desperate.
My recent post 10 Things Life Is Too Short To Do


Money Infant February 27, 2012 at 3:03 pm

Steps #8 and 10 are the keys to the kingdom if you want to create a budget that actually works and get yourself out of debt as quickly as possible. Very nice list. Oh, and what's the gutter brain B word? I thought broke immediately, but I guess that wasn't it.
My recent post 21 Reasons Why You Don’t Spend Less Money Than You Earn (And How to Fix It)


Modest Money February 27, 2012 at 3:57 pm

Thanks for these tips Nick. I'm not in a desperate debt situation, but I'm trying to improve my finances and these tips should be very helpful. The first step I plan on making is to start a budget journal.
My recent post Drinking Tap Water – Saving Money One Glass At A Time


Jana@DailyMoneyShot February 27, 2012 at 8:20 pm

4, 5, and 10 had the most impact on us. In fact, if #10 hadn't happened, we wouldn't be out of consumer debt. We had similar eye opening moment when we realized we had spent over $400 a month on restaurants and conveniece store purchase. Sickening.

Fortunately, even at our worst, we were still current on our bills. Nothing had lapsed to the point that we had collectors calling our house (well, they called our house but not for us. For the people who were using our phone number. McDowell family, if you're reading this, you've got about 1000 messages), which made a huge difference in our plan of attack.
My recent post Being a mother does not need a salary. Stop giving us one.


Taline February 28, 2012 at 3:27 am

All great tips that many people should be following. It is amazing what people realize they waste their money on once they actually take a look at their spending habits.
My recent post What is APR?


frugalportland February 29, 2012 at 6:35 pm

In some ways, I think it's easier to budget when you're broke. I agree about paying down debts — it's good to look at it as a return. Paying off a 29% interest loan is just like getting a 29% return on something. That's how I look at it.


Nick March 2, 2012 at 3:26 am

Great to hear, addvodka! Sometimes a little pause and "what the heck am I doing" moment is all you need to get priorities straight and debt reduction moving in the right direction.


Nick March 2, 2012 at 3:26 am

Thanks Money Infant! It rhymes with witch?


Nick March 2, 2012 at 3:27 am

Thanks Modest Money! Hope it helps. Let us know if you have a puke on your shoes moment!


Nick March 2, 2012 at 3:29 am

Convenience store purchases would drive me nuts! Way to go taking control and killing the consumer debt… if only the McDowells could do the same. If you have a forwarding address, feel free to print out the post and send it to them, haha.


Nick March 2, 2012 at 3:30 am

Thanks Taline. Yep – I was raised in the restaurant industry. When I saw how much we were spending at restaurants I was shocked. I'm now almost embarrassed to walk into fancy-pants restaurants (unless I'm not paying…).


Nick March 2, 2012 at 3:31 am

Yep – if only most people would look at it that way! I'm happy I don't have any credit card debt, but it would be nice to have a guaranteed 29% return… I'd take that any day!


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