Last week’s Financial Friday post I discussed making a budget, but what I didn’t talk about was making a budget when your behind on bills. One of the hardest things to tackle when it comes to managing your money, is trying to figure out how to make ends meet if your broke. Creating a budget is even harder when you are behind on bills and have no idea on where to start. Your basic budget steps will be the same, but your spending and break down expenses will look different. If you are behind on bills then you will spend more time assessing your situation and coming to terms with how bad things really are.

If you are in this situation and are trying to come up with a money plan , here is what you need to do set up a working budget and get back on track.

Step #1

Look at your current financial situation many of us put off looking at our financial situation because of fear. With having to accept how bad things really are Please get past this fear and really look at your current situation. You cab not dig yourself out if you don’t know how deep the hole is.

You need to know how much money you have coming in versus what is going out. If you are reading this you probably have more money leaving than you do coming in and that’s okay. Here are things you need to do access your current financial situation.

The first thing you need to do is take out a blank piece of paper and write down your monthly income. This is the amount that is in your account when you get paid.

Now write down all your expenses . Every single thing you spend money on every month needs to be recorded. Some of your expenses might include (cable, utilities, food, gas, etc) make sure to list al of your bills and debt payments on this list as well. The best way to do this is by looking at your bank statements for the last 2 months. This will give you a good idea of where your money is going.

Now that everything is listed on paper. Its time to organize everything. We are going to focus on your expenses organize them into 3 categories (debt, regular monthly bills, variable expenses) .

Debt: This category is to record all debts that you need to pay off, make sure to list every debt, you have even if you not currently making payments.

Regular monthly bills: In this category you need list the bills you have to pay every month. Example- cable, mortgage/rent phone bill etc. These bills are usually the same amount every month and need to be paid the same time every month.

Variable expenses: These are bills that change every month. Like gas with the prices constantly changing one month you might spend $50 the next $100.

 When you have all of your income and expenses listed added up all of your monthly expenses and subtract the amount from your monthly income. If you are behind on your bills you might want to consider not saving money right now until you are caught up on your bills. From your debt and regular monthly bill categories I want you to highlight the bills you are currently behind on. Those bills just became your first priority. If this is your first time creating a budget  and you are behind on bills, its important that you don’t fall even further behind.

Now that you have the past due bills highlighted next to each one. I want you to list how much you are behind. For example mortgage-$1,000. Do this for every past due bill. By doing this you get a clear picture of your current financial situation.

Step #2 Know your options

You might be behind on bills but you also might have options. Most of the time creditors are willing to work with you if you are willing to make an effort to get caught up . Simply explain to the creditors your situation  and see what options are available. You will never know your options until you make the effort to find out what they are. I know this might be scary or embarrassing, but trust me you are not the only one.

Step #3 Identify the problem area.

Since you created your budget in Step #1. You will be able to see categories that you can cut back on. Do you spend to much on groceries? Do you have a coffee habit that is eating away a lot of your funds? It’s important to recognize where you weakness are when it comes to spending and keep those in mind. When you are working on your next budget. The truth is if you are behind on your bills, you might have to cut out the small spending pleasures until you get caught back up.

Step #4 Reduce your spending

You still need to get caught up on your past due bills. Which means you will need extra money. You can either cut your expenses ormake extra money.

In order to cut your spending, you will need to address the problem areas. You identified in Step #3. You also nee to look at your variable expenses from your budget and look for ways to cut down cost. This mean looking for things that are more of a luxury than a need. Here are some examples of unnecessary expenses that you might be able to reduce . ( cable, cellphone plan, entertainment, gas, eating out)

Look for ways to cut these expenses consider cutting that expensive cable and getting Netflix or Hulu. Adopting a more frugal lifestyle will vary for everyone but its important that you are always looking for ways to reduce your expenses, even if its small amounts .

Budgeting is a mindset you have to be willing to change yours!!!

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