Basic Budget – Check that Net – Negative Result

Posted on Posted in Personal Finance

It’s time to review the net cell on your spreadsheet. This was the difference between your income and your expenses. If that number is positive, congratulations. You’re not losing money every month. If your number is negative there’s a problem. There’s more money going out than coming in and that’s what I’ll write about below.

Negative Net

If you have a negative value in the net cell of your spreadsheet, this is problematic. You have more money going out than coming in for that month. This needs to be addressed. Let’s get the obvious out first.

Can you generate more income? A side hustle, maybe overtime at work (if you’re paid hourly)? What can you live without for now? (reduce or eliminate the number of streaming services, find cheaper insurances, reduce entertainment expenses or dining out, etc. Having a negative net is not the end of the world, but it does force you to take a hard look at where, exactly, your money is being spent and decisions need to be made in order to get that net value to at least zero. A positive value is by far the end goal, but when just starting out, getting to zero is a good first goal. Remember, if you don’t make your goals realistic, you’ll never achieve them. Keep it simple

Work on Reducing Expenses

Here’s a checklist to get you started in reducing your monthly expenses.

  1. Are you living in a home that is beyond your means? You may consider selling it and getting a more affordable home.
  2. Is that car really worth it? Like the fancy home everyone would like to have that fancy car. However, if it’s keeping you in the poor house, is it really worth it? Can you sell your can and buy a reliable used one with the proceeds?
  3. Insurance costs. Being retired, this is a big one for me. Where I live home insurance prices are ridiculous. Shop around. These companies have little loyalty to you, so why have any for them? Shop around for all your insurances, home insurance, car insurance, medicinal insurance. Evaluate all of them.,
  4. Cell phone service. Do you really need that new phone every time it comes out? Do you need wifi on your tablet and watch? Evaluate your provider and see if there are any discounts available.
  5. Streaming services. Cutting the cord was a big deal a couple decades ago and made sense. Unfortunately there are now so many providers that it’s really not that cost effective. Decades ago you could get a single streaming service or two and that’s it. Today I’ve talked with people that have a half dozen or more. Add all those up and it’s typically a good chunk of money going out every month. Is that really worth it?
  6. Entertainment and dining out. Here too there may be money to save by reducing the costs.
  7. What else is on your spreadsheet under that expense column? Go through this line by line.

Personal Decisions

Making cuts in your monthly expenses requires some soul searching and personal decisions. I heard so many people just complain they couldn’t get rid of this service or that car/home or they had to go out a few times a week to unwind. The hard reality is that living within your means is not always easy. This is especially true when you’re first starting out making an attempt to get your finances in order. Also a pet peeve of mine are those that want to keep up with the Jones’. This is where some folks are more worried about what people will think if they’re not living in that big house, driving that fancy car, wearing the name brand clothes, etc. etc. STOP The Jones’ aren’t paying your monthly bills. You are. Let the Jones’ worried about themselves and you handle your own business. Make a serious effort and find categories you can eliminate or cut back.

Make the Call

Negative net doesn’t happen overnight and if you’re carrying large balances on your credit cards, medical bills, or have accounts in collection, this too is a problem. Don’t underestimate the willingness of these companies to work with you. You can get a reduced monthly amount due, interest rate and in some cases have some of that debt forgiven. The last is pretty rare, but the others are in your reach. Remember when you made that list of debt and sorted by interest rate and balance? This resulted in our prioritized list of debt. It’s time to make the call. Take a deep breath and dial the phone. Talk to them. Explain the situation and see what type of plan you can decide on. Can you get a reduction in the monthly amount due? Can you get reduction in the interest rate your paying? Will they agree to forgive some of that debt? At the end of the day the credit card companies, medical companies, student loan lenders, etc. all want their money. However, if you file bankruptcy they won’t get anything. They will work with you if you’re serious.

Side Note:

By the way, bankruptcy is a last resort. I’ve gone down that path before and ruined my credit for about 7 years. I didn’t know about getting and working a plan, contacting companies, etc. Additionally, since bankruptcy seemed so easy, I didn’t really learn anything. It wasn’t until I was again facing bankruptcy that I became serious and knew a change had to be made.

Wrap it Up

Time to wrap it up. You now know exactly how much income you have coming in. You know exactly how much money you have going out. You’ve reviewed and perhaps implemented ways to generate more income. You’ve gone over all expenses, line by line and made the tough decisions on what to keep, what to reduce and what to get rid of. Lastly you’ve evaluated all your long term debt, made calls to identify options. These are all great ways to start. If, by this time you net is zero, great! Work the plan. If you’re still carrying a negative net, you need to do the above process again and again until you’re at least to zero. Remember, our first goal is to get that net to zero. After that is achieved, the next is to get that net into positive territory.