The Going Broke Blog

I’ve always been pretty good with numbers, especially ones with dollar signs in front of them. But I read lots of horror stories of consumers who fall into debt problems and end up keeping their cell phones and Dish Network accounts current, at the same time they end up with their homes in foreclosure.

So let’s talk about budgeting and how to prioritize your bills when you’re going broke.

Here’s a rundown of my bills, rated first (must pay) to last (pay if I can, cancel if I must):

1. My home mortgage

2. My car loan

3. Home and car insurance

4. Storage units

5. Cell phone

6. Business-related bills (web hosting, studio rent, e-newsletter service, other services, etc.)

7. Home bills (home phone, home internet, electric bill, propane for heating, etc.)

8. Second home mortgage (the home and debt I inherited from my father)

9. Credit cards and lines of credit

The most important thing is to ensure you keep a roof over your head, food in your belly, and a way to make a living. If you lose your car and can’t get to your job, everything else will fall like dominoes when you get fired. Ensure your ability to earn money; then use that money to pay what you can and enable yourself to climb out of the hole you’re in, either through debt counseling or bankruptcy.

You’ll note my business expenses list highly on my priorities list, but only because I make a good bit more money each month from my small business than I lose to expenses. To cut out these expenses would cut off that income; both revenue and profit. That profit I use to help pay other bills; there’s nothing wrong with leveraging money to make more money if you can. Be realistic with your numbers to ensure you really are profiting, and stick with it if it’s giving you more opportunities to earn money and pay your bills.

My cell phone service also ranks highly on this list for this reason. Unless you make money with your cell phone, then consider it down there with other “comfort luxuries.” Reduce your plan as small as it will go, then control your usage to stay under that number. If you can get out of your contract without a fee, do so; you can always sign up again later when your finances are in better shape. Despite the proliferation of cell phones across the land, being unreachable is probably better for your sanity and mental health than always being accessible.

For most, your standard day job income should be enough to keep your foundational bills paid: mortgage, transportation, home necessities. Everything else can go to collections or be wrapped up in your bankruptcy filing, but these are the things you will need to keep up with to give you a launching pad for your new financial life.

It’s a long-standing business axiom that what isn’t measured isn’t maintained. The best way to tighten your financial belt is to pay strict attention to what you’re really spending money on.

Keep a small notepad with you, or jot notes on your iPhone as I do, and log every single time you spend a dime on anything, from gum at the gas station to making your online mortgage payment. Write everything down, and review it every week, and every month. Tally up your total spending for different purchases (coffee, movies, fast food, etc.) and see where you have room to cut back.

I didn’t realize how much I spent on lunch each day when I ate with my coworkers at the office. Totaled up over a month, this amounted to hundreds of dollars; that’s a family cell phone bill, or a small car payment!

Forcing yourself to write everything down will also make you consciously accountable for what you’re choosing to spend money on. You’re going to feel bad when you realize you’re about to spend $10 on lunch, then tell your kid he can’t have a toy at the grocery store because you can’t afford it; especially when you could have made yourself a $2 meal, or had a cheap microwaveable meal, or even a sub from Subway. You would have had a healthier meal and saved money for more important things.

A good budget, like a good diet, is not built around deprivation, but moderation. I can choose the medium one-topping pizza at Pizza Hut or I can choose the salad bar.  I can choose to make my lunch at home for a couple of dollars, or I can choose to leave my lunch spending up to the whim of my coworker’s appetites.

Use the common sense that the Good Lord gave you, and you’ll find yourself making better decisions in no time.

- James

How do you prioritize your bills in tough times, and what have you had to let slide in the worst times? Where have you cut back on your spending that has made the biggest impact on your financial freedom?