Preventing yourself from going broke looks easy on paper: you just need more money coming than goes out each month. In practice, however, we all know it’s a lot more difficult. The reasons you end up short at the end of every month may be hard to identify. Here are the six most common reasons you end up broke or, at least, a little poorer than you’d like to be right before payday.
Ever since credit cards were invented in the 1950’s they’ve been both a blessing and a curse. They’re great for large purchases and for protecting your cash and checks from theft and fraud. But they’re also easy to use...too easy. And when all you have to do is swipe your way through purchase after purchase, spending more than you can afford is easy, too.
Once you wind up with credit card debt, getting out can be difficult, to say the least. Heavy interest charges, late fees, and bad marks on your credit score all cost you, big time.
But the solution isn’t to cut up your cards and cancel your accounts. Credit cards help build your credit history and raise your credit score. The best way to use them is for small, predictable amounts. Tying one of your regular bills (cell phone, cable, internet, etc.) to a credit card and paying it off completely each month, on time, is the best use of your card: you’ll prove to the company, credit agencies, and yourself that you can use credit responsibly. For shopping, use your debit card and use it sparingly. Your purchases will be instantly deducted from your Spending account, interest- and debt-free.
Cost of living
A lot of people live “beyond their means”-- meaning, they spend as though they have much more money than they do. That’s especially true when it comes to renting an apartment or buying a house. Part of the reason the economy collapsed in 2009 was because so many people bought houses that cost far more than they could afford.
The rule of thumb for living expenses including rent or a mortgage and all utility bills is no more than 36% of what you make. If your cost of living is close to or more than that, it’s time to make some changes. Find a cheaper apartment, take in a roommate, and look for ways to lower your monthly bills by changing your cell phone plan or cutting down on cable.
Here's more information on how to rent an apartment within your means.
Going out with friends almost always costs something, but it doesn’t have to drain your bank account every weekend. If your social plans always seem to involve spending a bundle, offer up some low cost options for hanging out. A trip to the mall can easily set you back $50 by the time you finish window shopping, getting something to eat, and catching a movie. Next time, hit up a museum together, throw a dinner party for your friends, or visit the nearest park for a hike, picnic, or just to get some sun. Spend time together, not money.
Interest charges and late fees
Paying your bills late doesn’t just affect your credit score. It also drains your bank account. Credit card, utilities, and cell phone companies make billions and billions of dollars a year from late payment fees. Don’t give away your hard earned money just because you forgot to pay a bill. Set up automatic, direct-debit payments if you’re sure you’ll have the cash on hand. If not, make a little space on your desk for a dedicated bill inbox. Keep track of due dates on your calendar and keep all that extra late-fee money for yourself.
The urge to splurge can be difficult to resist. If shopping is one of your vices, do it wisely. Sign up for store email lists so that you know exactly when the biggest sales happen. Do some thrift store shopping and find something truly unique. And, when all else fails, curb your shopaholism with a call to a friend. Make plans together that don’t include the mall.
Check out more ways to spend wisely.
Dining out binges
Don’t feel like cooking? We know exactly how you feel. Dining out is faster, easier, and a lot more fun without any dishes to wash up. But it’s also expensive. Sit-down restaurant meals usually cost between 5 and 10 times what they would to make at home. Think about it the next time you’re at a restaurant: you’re paying for your food, sure, but also for everyone’s salary there, the rent for the space, their utility bills, their advertising, and their kitchen equipment.
Staying in doesn’t have to be a drag. Cooking for your friends or someone you care about can be both a lot of fun and a nice gesture. Cooking at home will also save you a bundle, especially if you eat out frequently. Give it a try.