Here's What You Can Do If You Spend More Than You MakeMar 30, 2023
All this budgeting talk sounds great, but what if you're currently spending more than you make? You might be counting yourself out of this budgeting conversation because you know that each month your credit card debt is growing or your savings is shrinking, or both. This is specifically to the people who are consistently spending more than they make.
First of all, I wanna let you know that I build over 40 budgets a month for different people, and as their numbers come in and I set up the numbers, most of the time they are currently spending more than they make. So while this might not be something people are willing to say online or share with those closest to them, I want you to know that you are not the only one spending more than you make. There are things we can do to correct it.
Why does this keep happening?!
Now, there's a difference between occasionally having times throughout the month where your expenses are larger than your current income, and having an overall budget that's consistently negative month after month after month. For those of you who are paid more frequently than once a month, it's very normal to have these rhythms in the month where a large expense comes out of your bank account. It makes your account seem small because the timing doesn't line up with your pay periods. This is what we use rollover for the next pay period for in our pay period budgets. We can plan ahead several pay periods in advance and identify pay periods that will be negative, and then use extra income from other pay periods to cover that deficit or to spread out the income across the pay periods. That's different than looking across your next six pay periods and seeing that overall your spending is larger than your income.
So why does a pay period budget help in this situation? When you're in an emotional situation where your expenses are larger than your income, it's easy to feel frustrated, worried, burned out, concerned, and embarrassed. It tends to balloon our perception of what the problem actually is. But the solution might actually be more available to you than you expected.
Pay Period Budget to the Rescue
When we set your numbers up by pay period, we can identify three things:
- Do you see a deficit all the time or only occasionally?
- How much is the deficit?
- Where is the money actually going?
And that third one is the most important in terms of finding the solution. This is why I really encourage people who are consistently spending more than they make not to run away from the idea of a budget because they say, "oh, my money is too much of a mess. There's no point in me budgeting." It's actually even more important for you to build a budget when you feel like you're money is a mess. We need to answer these three questions so that we can move you from where you currently are - spending more than you make - to having a positive gap between your income and expenses that can actually go towards your goals.
Ignorance is Not Bliss
While it might temporarily feel a little bit safer or easier to avoid looking at your real numbers, it allows the problem to fester. It allows these deficits to grow if we ignore them. If your ultimate goal is to get out of this rut of overspending your income, then the first thing we need to do is to look at the real numbers. Awareness is bliss, not ignorance. Knowing your real numbers allows you to make a real plan. Having a real plan allows you to make real solutions.
So building a budget by pay period allows you to identify those three things. So let's go through those three things again:
Number one, find exactly how much income you have available and when it will be available. Now, do the same thing with your expenses - which ones need to be covered during that income before you get paid again?
Number two, the Debt Free Mom pay period budget then calculates exactly how much money is available during each pay period. As you enter your numbers into the template, the amount left is a bold number at the very top of the pay period column. If it's a positive number, that means you have extra income available during that pay period. If the amount left is negative, it means that during that window of time, your expenses are going to be larger than your income. This allows you to see if this is happening on all of your pay periods or only on some of them.
Number three, look critically at your spending and at your plan for your next six pay periods. If you look at the right side of the Debt Free Mom pay period budget template, you'll see that it shows you what percent of your overall take home pay is going to each category listed. You'll see how much of your money is going to housing, how much is going to food, how much is going to subscriptions and fun, how much is going to debt minimum payments, etc. This can help guide your thought process when you're identifying areas of spending you could cut back.
Increase the Gap Between Income and Expenses
Some of you will see right away that some of the spending categories like food and personal spending cash are eating up a large portion of your take home pay. This helps you to narrow your focus and give you a few categories to start with when dialing back your spending and reducing these deficits. You could also find that you've already reduced your food spending as much as you possibly can, you don't currently give yourself any spending in personal cash, and your regular bills like utilities or cell phone are already pretty low. However, you might see that your housing is taking up 40% of your take home pay or your debt minimum payments are taking up 35% of your take home pay. This identifies a budget that most often is going to need to increase income in order to close the deficit. There's not a simple or quick way to dramatically reduce your housing cost, and there's not a quick way to dramatically reduce your debt minimum payments outside of paying the debt in full.
But we need to know where that money is going before we can make those solutions. And without a budget that clearly lays out exactly what your income is and exactly what your expenses are, the relationship between your income and expenses isn't always obvious. We can't just go by what your bank account balance is, because that balance is going to ebb and flow in a really large way. We need to see what the trend is over time, and a pay period budget can allow you to identify this.
Your Money is Not Beyond Help
So if you feel caught in the fog of spending more than you make and feel lost about where to start, I want to encourage you that you are not beyond help. A budget is not a waste of your time. A budget is actually one of the best uses of your time. It will clearly show you when you have a deficit, how much it is, and where is your money actually going.
It's really hard to make a plan with vague numbers. Saying "I spend more than I make" without a detailed breakdown of the cash flow is not going to fix the problem. Someone who can say specifically, "I spend $400 more a month than what I make, and I spend $600 a month on restaurants and $200 a month on clothes" - that person has a pretty clear action plan. If we reduce the restaurant spending from $600 to $200 and the clothing spending from $200 to $100, we have closed their deficit! But we can't know what the problem is or how much of a deficit we have until the numbers are laid out clearly.
I also see custom budgets where people have tried so hard to drive down their expenses. They have cut subscriptions, they have removed fun, they have cut out restaurants, they're always eating at home, and they still are running into a deficit. Why? Because their large expenses are taking up too much of their take home pay. If housing and transportation and food are taking 75% of your take home pay, and you are left with a quarter of your income to cover every other aspect of life, the only option left is increasing your income. You've already bottomed out those expenses as low as you possibly could, so you need to drive up that income number. While this might seem overwhelming, this is something we can act on. Having this information allows you to make a plan.
It can also give you the freedom to let go of the pieces of your finances that aren't actually the problem. You might be frustrated by your grocery spending. But only by building your numbers into a pay period budget can you realize that your grocery spending is taking up maybe 11% of your take home pay while your personal spending or your debt payments are taking up 40% of your take-home pay. We can triage those categories and focus on the ones that are taking up the bulk of your income as opposed to the ones that are taking up just a small portion. So filling your numbers into this pay period budget will not only give you action steps, it'll also allow you to release the categories that you might have thought were a problem that weren't actually a problem.
Now It's Your Turn!
If you've read this far and you know that you are spending more than you make, I encourage you to take one small step towards solving your problem. Download the free basic budget template at debtfreemom.co/store and start entering your numbers. If starting with six pay periods at a time is too intense, just try three or four. First, enter your income. Then, enter your real expenses - not what you wish you were spending or some goal amount. Enter what you're actually spending. This will show you the deficit amount and when it's happening. It gives you a window into your numbers before it actually happens in your bank account. As those light bulbs start to go off where you recognize, "oh, here's where my money is going. Here's when the deficit is happening, or it's not as bad as I thought, or it's worse than I thought." Those are all pieces of information that we can then use to build a specific plan that's right for you, and that starts to close that gap between your income and expenses.
It doesn't matter how much money you make or how much spending you have. This kind of problem can happen to anyone. Don't count yourself out because your income is too high or too low, or your expenses are too low or high. The amount of confidence and security we feel in our finances is all created by the gap that we have between our income and expenses. If you have no gap, if that margin is razor thin and is regularly going into the negative, that creates the feeling of living paycheck to paycheck. By establishing a budget that will show you when your deficits are happening, how much they are, and where your money is actually going, you can start to create a specific actionable plan that will grow the gap between your income and expenses.
If you're ready to give your numbers a try inside of a pay period budget, even though you know there's a deficit, you can go to debtfreemom.co/store and download either the free basic template or the $9 Debt Free Mom template that includes a couple instructional videos, a worksheet to gather all your numbers into one place and analytics on your budget to show you these percents and these take home pays.
You're not a lost cause. Your money is not beyond repair. Even if you spend more than you make, we can help!
Download the free Pay Period Budget Template here
or get a jumpstart on your budget with the $9 Template & Mini Course