Why Am I Always Broke?

Do you feel like you never have any money leftover at the end of each month? That you’re just barely scraping by? Unfortunately real wages haven’t risen in decades for the majority of the U.S. population, so it’s more important than ever to stretch every dollar and adopt a lifestyle that fits your budget. If you don’t know where your money goes every month, this newsletter is for you. Even if you feel good about your budget, it would probably still be worth your time to go through this guide and make sure you aren’t missing anything.

Step One: Know Your Money

If you haven’t already, you need to figure out exactly where every dollar that you earn is going every month. Start by writing down your necessary expenses; these include:

• Rent or mortgage payment
• Utilities (electricity, water, trash, internet, cell phone)
• Gas and/or car payment
• Student loan payment
• Credit card payment or other loans
• Insurance (health insurance, life insurance, car insurance, any type of insurance)
• Groceries and household expenses
• Child-related expenses
• Savings and retirement contributions

After you have your necessary expenses written down, write down your discretionary expenses. These include:

If this is your first time writing down your expenses, or making a budget, you may be shocked the first time you see everything written down. Hopefully you make more than you spend. If not, you may need to spend more time on step two.

Step Two: Make Changes to Discretionary Expenses

No matter how great you’re doing, there’s always room for improvement. Start by making cuts to your discretionary expenses; what expenses aren’t worth the cost? If your budget already looks good, only cut expenses you no longer want. If you pay for something that gives you enjoyment, and you can afford it, there’s no reason to cut it from your budget.

However if you are spending more than you make, or if you aren’t saving any, you may have to cut some things out of your budget that you enjoy. Start with what hurts the least. If you eat fast food frequently, you’ll get just as much enjoyment, if not more, from cooking at home (although cooking is more time-consuming). Audit your subscriptions; are you paying ongoing fees for something you rarely use? Do you update your electronics too often?

Only you can decide what to cut from your discretionary spending; there aren’t any black-and-white rules. Some might say no one should buy the new iPhone every year, but if you can afford it and it gives you more enjoyment than saving that amount of money would, I say go for it.

Step Three: Make Changes to your Necessary Expenses

The next step is to make changes to your necessary expenses. You probably won’t be able to cut any of these expenses out of your budget entirely, which is why they’re considered necessary expenses. But that doesn’t mean there’s no room for saving money; in fact, you may be able to save more money by cutting your necessary expenses than getting rid of some discretionary expenses.

It’s important to keep quality of life in mind as you’re making cuts. You probably shouldn’t get the cheapest health insurance you can, or live in the cheapest apartment you can find, or eat the most cost-efficient food you can buy.

Instead of making cuts to your quality of life, shop around and try to make small cuts to expenses while maintaining quality. You might be able to find an apartment that’s just as nice as yours for $100 less a month, or you might be able to shop at a warehouse like Costco or Sam’s Club and save money on groceries while getting the same quality you’re used to.

Like with discretionary expenses, the only person who can decide where to make cuts to necessary expenses is you. No one else can tell you if it’s worth it to save $200/month in rent to live 10 minutes farther away from work. For you, it might be worth it to pay more to live closer. Or it might not.

Step Four: Re-evaluate Your Spending

After you make changes to your spending, take a fresh look at your budget. Does it look better? If your spending is about the same (or greater than) your income, you may need to go through steps two and three again and make more drastic changes. If you get to the point where it’s hard to make more cuts to your spending, it might be a good idea to put time into finding a higher paying job or another income stream (this could be a part-time job, freelance work, or side-hustle).

Unfortunately you can’t just strap on your job helmet and squeeze down into a job cannon and fire off into jobland, where jobs grow on jobbies. There are millions of people in America who work extremely hard and spend very little and are still barely scraping by. This newsletter only discusses what changes individuals can make, not what societal changes are needed to address issues of income inequality, rising student debt, and astronomical healthcare costs, to name a few.

If you have a solid plan in place for future spending, you’re ready to move on to step five.

Step Five: Implement, Monitor, and Update

Implementing your spending plan, monitoring your progress and success, and making any necessary changes are the most important steps of successfully budgeting. If you don’t follow step five, you’ll end up back at step one very quickly. And nobody wants that.

Sticking to a spending plan can be very difficult at first, especially if you had to cut some things out of your budget that you enjoyed. However it does get easier and easier as time goes on, and the security of knowing you’re financially stable and prepared for the future is worth the price of cutting some expenses.

As you make changes to your spending, see what works and what doesn’t. Do you really miss watching Netflix and need to go back? Or have you noticed something you’re spending money on that you don’t really need? Don’t hesitate to make changes to your budget; a budget is the most efficient when it is constantly being changed and updated.

Originally published at https://timeandmoney.substack.com.