How to manage your money when you don't make much

When you're not bringing home much money, you have to be even more creative about managing your money. Especially now in this time when we're facing extraordinary inflation on the essential items that we all have to buy. Here are a few things to think about if you have to manage a very small budget with shrinking buying power:

Are you spending money on non-essential items? If so, this is probably a good time to reduce that as much as possible, and make sure you're saving up before buying any big items.

Are you shopping at the least expensive grocery store in your area? I wouldn't travel too far away to find the cheapest price since that could waste gas or mean a larger bus fare, but most communities have more than one store choice fairly close. And make sure to look for the generic brands with the same ingredients, but a smaller price tag.

Have you shopped around for insurance and found the best price? Check with your benefits department at work to see if they have negotiated any group rates on home or auto insurance; or check with your insurance agent to make sure you've got everything bundled and are getting the best rates.

Have you adjusted your thermostat? If you turn it down a few degrees this time of year and wear a sweater inside, it can save money on your utility bill, and research shows you sleep better in cooler temps. Also, make sure to check with your local utility company to see if they have any assistance for your income level.

Do you turn the water off when you're not using it? I'm pretty good about doing this, but my kids aren't. So I try to remind them when they're brushing their teeth to shut the faucet off. This won't save a ton of money, but it will save some, and every penny helps these days.

Do you shop at thrift or second-hand stores for clothing? If you have kids (who seem to grow an inch a week sometimes!), this is an especially money-saving way to shop. Many of the clothes are in very good condition because another child outgrew them before they could ruin them.

Do you walk or ride your bike when it's reasonable? It saves on gas if you don't start up the car to make a trip 2 blocks over.

As an added bonus, some of these tips are better for the environment and your health (and being healthy can also save money)!

Why Money Management is More Important Than Ever

Given the current economic situation, successfully managing your money has become more important than ever. One of the big worries that has the government scrambling to get a bail-out bill passed is the effect on the ability of individuals and small businesses to get a loan. The government is very worried about banks and other lenders becoming more reluctant to offer credit. One could argue that might be the right road to take long-term, but it would certainly continue to slow the economy in the short-term.

So how do you ensure that you always have the credit you need? By managing your money and maintaining a strong credit score. If you look like a safe bet, you'll likely still be able to borrow money when you need to. But if lenders look at your credit history and have concerns about recouping their money, you may be one of those on "Main Street" feeling the effects of the economic crisis on "Wall Street".

European vs. American Financial Institutions

According to a broadcast on NPR, the European banks are blaming America's current financial crisis on too little regulation, too much debt, and not enough savings. Europe sounds like me!

Regulation: You have to have a good understanding of what is happening with your money to be able to manage it. If you've worked in business you've undoubtedly heard the old adage, "what gets measured, gets managed."

Debt: In order to get and/or remain debt free, we must spend no more money than we make, and preferably less than we make.

Savings: It's important to have money set aside each month for all known expenses, and equally as important to have a long-term savings plan to send your offspring off to college, and to someday be able to quit working.

It's a good bet that the government won't bail you out to the extent that they're bailing out the banks right now, since your collapse doesn't jeopardize the global economy. So maybe we as individuals should follow the example of the European banks rather than the American banks.

Teaching Kids About Money Management (Part 2)

Although we never want to scare our children about money, I believe that open, honest conversations about the way we spend our money teaches our children to make better choices.

The other day my husband was at the grocery store with our daughter. When they were checking out she asked her dad when she could have a credit card so that she could buy anything she wanted. (Editorial note - my husband was actually using the check card, buying groceries on the credit card is a sure-fire way to take on unnecessary and unwanted debt!) My husband explained to her that using a credit card didn't get you anything you wanted. When he signed the card it was his promise to pay that money back.

He also talked to her about the difference between getting things that we want and getting things that we need. He told her we need groceries so we regularly spend money on them. My husband, who has a horrible CD habit, explained that those are things he wants and that mommy makes him save up his money to buy those!

So a quick trip to the grocery store turned into a good money management lesson and now our 7-year old knows more about how to use a credit card than some kids who are 18 years old. Take any opportunity you can to talk to your kids about how to use their money, it's much easier to learn how to do it when they're young than to learn the hard way and have to work their way back out of debt.

In Case You Needed Another Reason To Get Healthy

In case you needed another reason to get healthy, how about your long-term financial goals? This is a very interesting article by Dan Kadlec that appeared in Time Magazine. It makes perfect sense and is one more source of motivation for making healthy decisions.

Teaching Kids About Money Management (Part 1)

A coworker posed the question to me about how we teach kids to manage money today. Money is much less tangible than it used to be, we get our money direct deposited and electronically transfer it to other accounts. We pay our bills on line and most of us use debit cards (or credit cards, but check out previous posts to see my opinion on that!) Kids today don't often see cash to understand where all that electronic money is coming from, which can lead to later financial trouble.

I am a firm believer that kids should start with cold hard cash money when they're first old enough to start purchasing things. It helps to give them a solid grasp on what money is. It then becomes easier to explain to them when they start getting gift cards how the money is loaded onto them and that they can only spend up to the balance on the gift cards. Which also helps them to later understand debit cards and the even more abstract idea of credit cards.

My kids' school district teaches math using a curriculum called "Everyday Math" that was developed by the University of Chicago. I think it's a phenomenal math curriculum that teaches math the way we think about it. But the other thing that I really like about it is that it has kids use actual coins and bills to learn about money, and also has them use symbols for the same money. So they start to see different depictions that all represent the same money. OK, I've spent enough time on that soap box. I'll post again on this topic since there is so much to talk about here.

How to Make a Budget

So I've told you that in order to get out of debt you have to plan for paying that debt down, but how do you go about making that plan? By making a budget. But how exactly do you go about creating a budget?

The first thing you have to know is how much income you earn. If you're salaried this is pretty easy to figure out. The only small challenge here is figuring out the timing if you aren't paid monthly or bi-monthly since most of your bills will be monthly. If you're paid bi-weekly, you have a choice about how to budget your income. You can either multiply your salary by 26 and then divide by 12 to figure out a monthly amount, or you can budget for 2 checks per month and the two times per year that you receive a third check, this can be extra money. The other option is to plan the timing of your checks and plan certain checks for certain bills. The method you choose here should be the one that works best for you.

If you are paid hourly, piece rate, or any other type of rate that doesn't guarantee the same amount on each paycheck, figuring out how much income to count on can be more difficult. You can figure out an average of the amount you bring home on each paycheck, or you can figure out a minimum that you always bring home and treat any additional amount as extra just like the salaried method.

The next step in budgeting is determining what your expenses are. Some of your bills are easy such your mortgage or rent, daycare, car payments and other set expenses which just get plugged into your budget at the amount you pay every month. Bills like utilities, groceries, gas, clothes, etc. are more variable and you'll probably need to figure out on average how much you spend on those bills each month to plug into your budget.

You may find that after you put down all of your expenses, you're spending more than you make each month. This is frequently part of the problem with going into debt, when we continue to add expenses without making sure that our income can support the additional expenses. If this happens, the solution is either making more money (good luck and let us all know if you figure that one out!), or cutting your expenses. Maybe you'll find that you've been spending about $200 per month on clothes. So you can look at spending $100 per month, and not allowing yourself to spend any more than that. If it's your utilities that are causing you to blow your budget you can try setting your furnace 2 degrees cooler and wearing a sweater in the evenings; or spending a little bit of money and getting a programable thermostat. If it's your grocery bill, look for coupons or try a generic brand of your favorite food. The key to getting your finances back under your control is to spend less than you make; and having a full understanding of how much you make and how you're spending that money is the first step.