How to Plan for the Future When You’re Broke
Planning ahead for disasters is very difficult. Few young people factor in unpredictable expenses like car repair or emergency surgery, but these things happen, and more often than you’d like them to. All it takes is one major expense at an inopportune time to send you back thousands of dollars in the red. Due to questionable money management and short-sightedness most people reach out for those little handy plastics in a time of crisis. Depending on the severity of the situation this may be your only option. But never forget that credit cards are not your friend. In fact, they are the surest way to doom yourself to a life of scraping every penny just to cover your monthly payments to institutions that will actually benefit from your going bankrupt.
Let’s assume the worst has happened and it’s caught you completely unprepared – no savings and no safety net to rely on. The first thing you should consider doing is trimming your monthly expenses. Cut out everything that’s not required for your physical survival – cable, memberships, entertainment, etc. Look at ways to tone down your energy use and possibly change the plan you’re on; the same applies for your phone and Internet. Start cooking at home more and consider carpooling at least until you’ve regained some financial stability.
Making the minimum payments on your credit card is possibly affecting your credit score in a negative way. However, skipping credit card payments altogether will only worsen your debt. Above all, avoid being charged late payment fees because the last thing you want is to pay something for nothing.
Consider downgrading. Is your car efficient or can you switch to one that needs a more reasonable amount of gasoline? Do you need to rent/own a 4-bedroom house when a 2 will do just as nicely? Moving to a smaller or more efficient version of these things can ease the strain on your wallet and give you time to recover. By lowering your monthly bills, you are eliminating some debt, and putting cash directly in your pocket.
Categorize your expenses and learn to differentiate between needs and wants. More often than not people wind up broke with no savings because of unreasonable spending habits. If this was the case with you, identifying your problem areas will help you budget more carefully and regain control of your finances. Most budgets have leaks that can be plugged, so look at yours carefully.
Request extensions on certain payment plans by working out flexible arrangements with your bank, landlord or provider. Ultimately all these individuals or institutions are interested in getting paid and as long as you commit to a stable payment plan they will be willing to modify your existing arrangements.
As a student your living expenses are much lower than they will be following graduation, so try and make the most of that. Cut back on unnecessary expenses and consider limiting your social activities . Many colleges offer financial assistance for students who find themselves in the red, so be sure to check with the administration for possible grants you can qualify for.
Reviewing your past-month expenses can show you patterns in your spending habits you can correct. Once you’ve got a few extra bucks at the end of each week you’ll be able to save and hopefully prevent this undesirable situation in the future.