Living paycheck to paycheck can be stressful. It can be even more stressful when you’ve tried to budget your finances and it just doesn’t work out for you.
Well, no fear because today I’m bringing you an interview I did with Michelle Schroeder-Gardner of Making Sense of Cents. She runs an empire on her corner of the internet. She and her husband travel the United States in an RV while she writes about personal finance and lifestyle topics that you will absolutely love.
I interviewed her about why budgeting is so important and how to get out of the paycheck cycle.
How much of the problem is psychological?
“I won’t say that it’s always psychological because I do realize that some people have extreme problems that prevent them from living a “normal” financial life due to medical bills and other high surprise bills. However, for the most part, it is psychological. Many people make excuses for why they can’t improve their financial situation when in reality 99% are just excuses and things CAN change for the better. You just need to make that first step and realize that.”
- Determine what you want out of your financial life and change your mindset and set goals based on that.
- Surround yourself with likeminded people
- Make priorities and don’t be afraid to say no
Tell me about the importance of setting up a budget.
“Learning how to make a budget is extremely important. Budgets are important to anyone and everyone, no matter how much money you make, because it can help keep you on track and improve your financial situation. With a budget, you will be more mindful of your income and expenses, instead of just spending money and possibly falling into debt. By having a budget, you’ll know exactly how much money you are earning each month after taxes, how much you can spend each month, and most important, how much you can save.”
- Follow the money in and out of the bank account
- Set realistic expectations and rules for yourself to follow
- Try budgeting with different methods like on paper or using a software to find what works for you
Do I really need an emergency fund? How much would you suggest if I am starting from scratch?
“Yes! Emergency funds are always important. I have a well-funded emergency fund even though I earn a high income. Emergency funds are great because they can help you if you happen to lose your job or if your hours are cut at work. It can also help you if you have a bad business month, if you do not have the greatest health insurance and have a high deductible if you have an emergency repair such as with your car or home, and so on.
Are you can see, an emergency fund is extremely important. By having an emergency fund, you’ll be able to face your financial surprises head on, without having to take on any debt.
The amount that a person should have in an emergency fund can vary greatly, but I recommend having at least 6 months worth of expenses. Now, if you have debt, you may choose to tackle your high-interest rate debt first, but that varies depending on person to person. I recommend doing what you are comfortable with.”
- Open an account for emergencies in a different bank than where you normally do business
- Set up an automatic transfer to it of a set amount
- Start with a small goal like $1000 then move up
So you are getting a fat tax return, now what?
“Tax returns are money that is rightfully yours anyways, so you should think twice before you splurge on clothing or other items that are not always needed. You may want to think about throwing this windfall towards debt or retirement.”
- Before you even get the return assign it somewhere in your budget so you are less likely to blow it
How can I cut expenses without cutting out my lifestyle?
“There are many ways to cut your expenses without feeling like you are suffering. First, you should see where you are actually spending your money. Track your spending for the next week or two, or even the next month, and see how much of that was actually wasted money. You’ll probably be surprised, but I’m sure you won’t even remember a lot of the things that you spent money on!”
- Take the emotion out of it when setting up a budget and determining where the money is going
- Set realistic goals for yourself and plan around those
- Train yourself to not spend with emotion
How to make more money instead?
“There are tons of ways to make extra money! The average person watches over 30 hours of TV per week, so don’t tell me that you don’t have any time to make extra money either 🙂
You could find a part-time job, work towards a promotion and raise at your current job, start a business on the side, and so on. There are tons of possibilities when it comes to making more money.”
- Change your mindset. If you want more money you will have to sacrifice your time doing other things to make that cash.
Budgeting your money doesn’t need to be a long and complicated thing. As long as you are keeping track of your spending and bills throughout the entire money you should have an idea of your financial situation at any point in time. Find what works for you and go with it. If it doesn’t work for you then try something else.
You can download my budget brainstormer and my monthly budget planner to organize your finances.
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