TAKE CHARGE OF YOUR MONEY
Dead broke? How to survive
INQUIRER.net
First Posted 06:50:00 08/19/2008
Filed Under: Personal Finance
(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Question: I’m ashamed to admit this, but yes, I am dead broke. I lost my job three months ago when the company I was working for folded up. I was able to find a job the next month nearer to my home, but at a lower pay. I took the job because I needed to put food on the table. Because of the pay cut, I ended up paying my credit card bills out of my savings, which were not that big anyway. So now I am broke and with no savings, looking forward to payday when I can feel cash in my hands again. However, with my bills, it seems that money is never enough. How can I get out of this situation? – William
Answer: Don’t despair, William. That you have a job right now is a good step. Even if you lost a higher-paying job before, you are technically still earning now and there is payday to look forward to twice a month.
But have you taken a step back to see how you ended up in this situation? Let’s analyze your situation based on the facts you have given us:
• Your savings “were not that big” as you said. And so when your credit card bills came, you had to dig deep into your savings to meet the payments.
Your situation is nothing new. A survey conducted by Citibank Philippines in late 2007 showed that on the average, Filipinos have about nine weeks’ worth of savings. That isn’t big, nor is it enough to tide one over when a crisis happens, such as a job loss in your case.
You should aim to have at least six months’ worth of savings tucked away for unexpected events.
• You have more than one credit card, since you mentioned “bills” not “bill.” Is it possible that you are overextending credit to yourself?
If you don’t max out your credit card every month, you may be better off just using one credit card to save on annual fees. This will also help you keep track of your spending better.
• You have many bills, since you said money is never enough.
This weekend, or even during a night within this week, write down all your expenses for the month, both the fixed and the variable ones. Fixed expenses include rent, insurance, car payments, and the like. Variable expenses are electricity, transportation, and food, for instance.
Study your list. Is there a fixed expense you can lower down? For instance, if you are renting your place, see if you can lower down your rent by getting a roommate, or moving to another place altogether that won’t cost as much.
Then look at your variable expenses. Try to trim at least 10 percent off each variable expense. Take food, for instance. Instead of eating out at a fast food joint every lunchtime, bring a lunch baon to work. This will lower your expenses, leaving more money available for you.
Four tactics to rise from being dead broke
Now that we’ve scrutinized your situation, let’s list the things you can do to be victorious over this:
1. Make a budget. Don’t groan, but a budget is your friend. It will help you discipline yourself to keep to your limits, in this case, your income, and avoid racking up debt.
Start by taking your list of fixed and variable expenses. Based on your income, set limits for each expense item. Include a portion for savings, which should be at least 10 percent of your income.
Commit to stay within your budget for this month. Every night (or every weekend), write out every expense you have incurred. Keep a running balance against your budget to see if you should rein in spending or if you’re on track. Some people find that the envelope system works. They have an envelope for each expense item and only spend the amount in each envelope for that purpose. No more money in the envelope? Then don’t spend for that item anymore.
If you reach the end of the month still within your budget, pat yourself on the back as you’re on the road to financial independence! Stick to your budget throughout the year.
2. Save regularly. You say there’s never enough money. But there is money, and you can save. Just take out your savings as soon as you get your paycheck, then live on what’s left. Having this disciplined attitude will help you rebuild your savings faster.
To make savings automatic and to keep you away from the temptation to dig into it, open a savings account linked to your payroll account. As soon as you get your pay, transfer savings to this new account through online banking. Then watch your savings grow.
3. Find ways to increase your income. Maybe there’s a sideline you can do on weekends or after work? Or stuff that you have but don't have much use for which you can sell. Any added income can help you get out of your “dead broke” status faster.
4. Spend wisely. Before shopping or paying for any purchase, ask yourself if you really need it. If it’s not a necessity, hold off making this purchase. This is the time you should be more prudent in spending. Your goal is to build up savings, and to do that, you have to lower your spending.
With only these four steps, you can be in a better financial situation in a few months. Just keep at it and fix your eyes on the goal. We wish you the best.
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts )
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