This week I am participating in a $100 giveaway hosted by Savings Advice. The theme of this giveaway is “When there isn’t enough money at the end of the month”.
A little while back I wrote about how I’m living paycheck to paycheck (sort of). The gist is that I have automated savings set up, so once my recurring bills are paid and money is automatically transferred into savings and investments, I’m left with a very small amount in my checking account with which to pay my credit card bill. Anyone who’s actually living paycheck to paycheck might wonder why I would voluntarily put so much stress on myself to stay within my budget when my cash flow would support much more spending.
The answer is simple: if you’re not at least a little worried that you won’t have enough money at the end of the month, you’ll end up overspending on things like lunches and dinners at restaurants, shopping, and entertainment. If you’ve never experienced running out of money before the end of the month, you’re probably not saving enough.
The easy answer for those of us who are simulating a paycheck to paycheck lifestyle is to borrow money from our emergency fund to cover the bills. But that may not be possible for someone who is genuinely living paycheck to paycheck. When you’re earning minimum wage and every penny goes toward necessities, you don’t have any wiggle room.
The sad truth is, there really aren’t any very good options if you’ve run out of money before the end of the month and don’t have an emergency fund. The best you can do is minimize the damage and do better next month.
Making it Through the Month
Look for extra money
This is by far the best option. The options will only get worse as you go down this list. Look around your house/apartment for things you can sell on Craigslist or eBay. Offer to babysit your friend’s kids, or house sit or pet sit for any friends or acquaintances who are going out of town. Look in the Gigs section of Craigslist for one-time jobs you can pick up. Any way you can earn the money is better than having to borrow it. Just don’t resort to anything illegal. That’s worse than borrowing money.
Borrow from family or friends
Your best option is to borrow money from family or friends to make it through the month. If you have a very generous family member or friend, they may even give you an interest-free loan. With a personal loan, you won’t have to worry about your credit score being affected, sky-high interest rates, and you won’t have to go through an application process to get the money. But I would recommend writing out a contract in which you agree to a repayment plan. Your family member or friend is, after all, doing you a favor, so you should give them some assurance that they will get their money back in a certain amount of time.
carry a balance on your credit card
If you’re able to charge whatever expenses you can’t afford on your credit card, that will give you some time to come up with the money you need. This is an expensive option, as you’ll be paying quite a lot in interest. The average interest rate for credit cards is right around 14%. But if you’re able to pay off the balance the following month, this won’t hurt you too much in the long run.
Take a cash advance
If the expenses you can’t afford can’t be charged to a credit card (e.g. rent), you could take a cash advance from your credit card. This is costlier than carrying a a balance, as the interest rate is typically 1-7% higher than your credit card’s normal interest rate, and you must also pay a fee (typically $10-20). This is still a better option than a payday loan, which could have an interest rate anywhere from 400-700%. No, I did not add an extra zero.
As you can see, none of these are very attractive options. So you want to do everything in your power to not have to resort to them.
Do Better Next Month
Identify the problem
Why did you run out of money this month? Was it the first time it happened, or does it happen regularly? Did you have an unexpected expense, like an emergency room visit or a car repair? Or did you accidentally spend too much on eating out, shopping, or entertainment? If you don’t know the answer, it’s time to make a budget. Sign up for an account on Mint and start tracking your spending. You can’t fix the problem if you don’t know what it is.
Now that you’re tracking your spending, you should be able to identify some areas where you can cut expenses. Maybe you’ve been going out to eat too often. Maybe you didn’t realize how much those daily lattes added up to. Depending on how dire your situation is, you may have to look to the big ticket items. Consider moving somewhere with cheaper rent. If you have cable or a smart phone, you should get rid of those. If you have a large car payment, sell the car and buy an older one you can afford.
Make more money
Everyone always recommends this like it’s the easiest thing to do. In reality, jobs are hard to come by nowadays. But if you’re barely scraping by every month, you have to ask for a raise or promotion or look for a second job. Let your boss know you’re interested in taking on more responsibility, working extra hours, or have your eyes on a management position that recently opened up. If that fails, look for a side job. You could even start your own business on the side. It doesn’t have to be anything fancy. One of my friends recently started a pet sitting business on the side. It had absolutely no start up cost. She just made a Facebook page and promoted it to her friends.
Start an emergency fund
You don’t want to ever be in this situation again, right? Not knowing how you’re going to pay all your bills has got to be one of the most stressful positions to be in. That’s why you absolutely must start an emergency fund. If you’ve cut back your expenses and asked for a promotion or got a side job, you should have enough money now to put some away. Every month, put some money into your emergency fund and don’t touch it. The next time you find yourself unable to make it through the month, your emergency fund will be there for you so you don’t have to scrounge for extra money, borrow from friends or family, or take on a high interest loan.