What to Do if You’re Spending More Than You Earn
It’s easy to let expenses spiral out of control until your income won’t stretch far enough. So, here’s what to do to keep your finances in check.
In this article, we'll cover:
Everyone has those months where they slightly overspend for whatever reason, whether it be an unexcepted bill or an expensive holiday season. However, when this becomes a recurring pattern, it can quickly lead to more serious financial difficulties. That’s why we’ve put together a 3-step plan to help with what to do if you’re spending more than you earn.
01. Budgeting
The first step to getting your finances back on track is to create a budget as this is a great way to become more aware of how much you’re spending and on what. This free online budget planner will help you to categorise your spending and identify the areas you could cut back on.
To calculate your budget, you’ll need to work out:
- Your monthly income;
- Your total debt and how much you need to pay back each month;
- Your recurring monthly expenses, such as transport, clothing, utilities, and other bills
Once you have calculated these essential factors you can determine whether you are spending within your means; if the number you calculate is negative then you will need to revaluate your finances to make it positive.
A great way to make sure to stick to your budget is to determine your long-term financial goals; whether it’s paying back your credit card debts or booking your annual holiday, it’s important to have an objective in mind to motivate you.
It’s also vital to make sure that you’re continuously tracking your spending each week to ensure you stay on track. Many banking apps now offer this service for free to help make it easier.
02. Reduce your expenses
Once you know which areas you’re overspending in you can work out ways to cut back on them.
Most people find they can reduce the amount they spend on food through careful planning of their weekly meals, making shopping lists, and cooking their own food.
Another key to reducing the amount you spend is to control impulse buying. We’ve all experienced that feeling when you feel like you must have something in the moment, only to question your purchase a week later. So, to avoid this situation try waiting a few days before buying something expensive to give yourself time to think about whether you truly want it.
Cancelling your unwanted subscriptions will also save you a lot of money – so think about whether you need all the premium TV and streaming services or could you settle for just one?
Shop around for the cheapest utility providers – this includes mobile phone, electricity, and water services – often if you tell a company that you have found a better deal elsewhere, they will give you a cheaper contract
03. Be careful of how you’re using credit
Understanding how you’re using credit is the key to avoiding serious debt problems in the future.
Therefore, it’s important to be very wary of how you use credit cards as they have high-interest rates that can quickly lead to unmanageable monthly payments – that’s why it’s essential you don’t use your credit card as a debit card and make sure you pay off the amount you owe each month.
A great way to ensure you stay in control is by keeping track of your debt-to-income ratio – this means that your debt should never exceed 20% of your total income or you may be headed for trouble.
Keep a watchful eye on your credit report to get an idea of how you’re managing your credit.
If you’re already struggling to make payments and have creditors breathing down your neck then it can be tempting to take out short-term payday loans to appease them – however, this will only delay the problem and lead to a vicious cycle of debt.
Worried?
If you’re worried about how you’re going to pay back multiple unsecured debts the best thing to do is reach out for help. A debt consolidation loan is a great way to consolidate your debts into one affordable monthly amount. This is a good option for people with bad credit and could make paying back your debts much simpler and more realistic. So, apply today for expert help and advice based on your personal circumstance.
Apply Now
By: Maggie Elliott.
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