How to Balance Your Household Budget

Let’s talk about balancing a household budget where the household income is less than what you need to pay your bills.  So I am going to assume that the income is about 20% less than the expected outlays.  Just to make the math simple let’s use a round number of $2000 per month in income and $2400 a month in bills.

Without making changes to your financial situation you have two choices: Borrow money or stop paying on something.  Neither option is going to help your credit report.

Many people would be crass and tell you to get a second (or third) job.  I’ll assume you are looking but in the meantime you have to make bricks without straw.  Here are a few things you can do to stretch your budget farther but remember that sooner or later you will have to pay someone’s piper.

Option No. 1: Miss payments on credit accounts with available credit

You cannot avoid paying those late fees and the interest will add up.  But if you have to come up with $400 per month in payments then you just may be able to skip 1 or 2 payments for one month.  This puts you behind and makes it harder to catch up but you buy a little more time.

You also have to deal with the fact that you’ll be noted as a late pay on as many of these credit accounts as you allow yourself to be late on.

If you have the leeway to take all those payments and pay off 1 or 2 small debts, it may be worthwhile to take the hit but I would advise against that.  You really won’t be able to come back from paying off small debts by missing payments on big debts.

Option No. 2: Just pay late fees and interest on credit accounts

The banks will put up with this for a few months as long as your balance is less than your available credit but those fees and interest will grow over time.

By paying only the fees and interest you are borrowing from (robbing) Peter to pay Paul.  If you can do this to cover just your 20% shortfall you have bought some time but you’re not solving any problems.

Option No. 3: Ask for deferred payments car loans, mortgages, and credit cards

Although this is a better option than either no. 1 or 2, the drawback here is that you can only do this once every six-to-twelve months.  Unless the deferred payments save you enough money to pay off bills you will buy yourself a slight amount of breathing space and accomplish very little.

How deferred payments work is that the creditor moves the scheduled payment to the end of your loan schedule.  They may add a fee, and your interest charges will probably change because you’re not paying down the principle of the loan as quickly as originally projected.

Option No. 4: Put Your Household on a Bland, Starvation Diet

If you have children, especially young children who need certain foods, this will be very hard to do or justify.  You may need to seek food stamps or other social service help.  Don’t be too proud to feed your children what they need.  Pride is not nutritious.

That said, you can cut back on:

• Dining out
• Brand name products
• Menu variety

Buy less expensive sources of protein than you normally do.  If you can shave $200 a month from your grocery bill just by eating less exciting food for a while, that is much better than stealing from your credit cards.

If you live close to a commercial bakery you may be able to get bread on clearance.  It’s just as good as what you buy in the store but the bakery has to get rid of unsold inventory quickly.

If you buy brand name breakfast foods you can start buying store-brand equivalents.  They will taste about the same, cost about half as much, and are often made by the same manufacturers.

Stop eating fast food.  You can eat at home for less.

Stop going to nice restaurants for a while.  You can eat at home for a lot less.

If you feel like you cannot stop then look at how often you dined out over the last 90 days and budget for dining out about half as often.  That way if you ate out twice a week in the last three months you can plan on dining out once a week in the next three months.  But it’s really better to stop dining out until you get your finances under control.

Avoid frozen food as much as possible, except when it is on sale.  Don’t substitute TV dinners for real meals.  That is an expensive way to avoid dining out.  And the food in frozen meals is not as healthy and nutritious as what you can make for yourself.

Cut out the snack foods.  They are not healthy.  Create your own snacks with healthy foods like yogurt, peanut butter, pretzels, fruit, vegetables, etc.  You can buy these in bulk and that makes your budget go a long way.

Option No. 5: Cancel Your Favorite Subscriptions

Yes, if it’s sports season you’re going to be unhappy about missing games but the Internet makes it possible for you to follow games in a “live” mode on official sports Websites.  It’s not as exciting as watching the plays unfold but the NFL, for example, shows you replay clips.

Cancel your sports channel subscriptions, your gym subscriptions, your magazine subscriptions, etc.  Everything that comes in as a monthly debit that is not a legitimate bill should be jettisoned from your budget.  This is especially important if you miss payments and have to pay late fees or overdraft fees.

Option No. 6: Do all of the above

This is incredibly painful.  It means you will be noted as a late pay all over the place and that you’ll have to pay extra interest and late fees.  But if you can get creditors to reschedule payments for you, stop dining out and cut your grocery bill in half, delay some credit payments, just make interest and late fee payments, and cancel all your subscriptions you should have some money to work with.

Now you can pay off some debts and get back on a solid footing.  Your credit will gradually improve over time as you catch up on your payments.

There is no excuse good enough for sinking yourself deeper into debt if you are not taking drastic action to get control over your finances.  When you can finally bring in more money things will be easier, but hopefully by then you’ll be ready to put that money into a savings account.