Running out of money is an awful feeling.
For many of us, it means cutting back on needed medication, missing payments that will incur a late fee, or skipping meals entirely. And perhaps most devastatingly, it’s a recipe for going into debt.
According to a survey by Salary Finance, nearly 1 in 3 Americans run out of money before payday, regardless of their income.
The good news? This issue is often preventable with a little planning. Here’s what you can do to help make sure you never run out of money again.
#1. Track Your Expenses.
Knowing where your money is going is the first step to getting spending under control.
Start by carrying around a notebook (or check register) and write down everything you purchase, including the item and the price. After a month of tracking, look back at what you’ve spent. You’ll be able to determine how much money you actually need for necessities and how much gets spent on “extra stuff.”
Use your tracker to eliminate unnecessary spending and impulse purchases. This will put more money back in your pocket.
Tracking your expenses becomes especially crucial when your paycheck is irregular. An irregular paycheck could mean the amount you receive changes each payday. Or it could mean you get paid infrequently and can’t know for sure when the next influx of money will hit your checking account.
In cases like these, it becomes essential to save when paychecks are larger and budget conservatively when money is short. When paychecks are large, use what money you need to cover regular expenses and put any extra away in a savings account. During pay periods when money is tight, you’ll have a ready-made savings account to help you get through the rough patch.
#2. Add periodic expenses to your budget.
Many times, the items that derail our budget are periodic expenses. These include birthdays, anniversaries, holidays, emergencies, etc. Periodic expenses don’t happen on a regular basis, and sometimes only happen once a year. This makes them feel like unexpected expenses, but you can plan for these.
One way to manage these expenses is to create a savings account for special occasions. When a birthday, anniversary, graduation, or other special event comes up, you can pull from this savings account to cover gifts, travel, or anything else related to the occasion. This way, the money comes from predetermined savings and prevents your checking account from running out of money.
Another way to deal with these types of expenses is to use higher income months to pay for them. For example, if you’re paid bi-weekly, you typically receive two paychecks a month. However, twice a year, you’ll receive three paychecks a month. On those months, you can use that third paycheck to do your Christmas shopping, birthday gift shopping, and to purchase other items and services to cover your periodic expenses.
You’ll also want to create an emergency savings account for unexpected crises. The easiest way to build this account is to set up automatic transfers with every paycheck you receive. Even as little as $5-$10 a paycheck will eventually build up to a decent-sized emergency savings account. Again, if you’re paid on an irregular basis, you should be saving when income is higher, and spending conservatively when income is lower. During lower income months, you may choose to stop putting money toward your emergency savings account altogether. Just make sure you go back to saving when cash starts flowing again.
#3. Try a cash-only system.
If overspending is the reason you’re running out of money, try carrying only cash. This will force you to make decisions on whether or not a purchase is actually necessary.
Use your budget and expense tracker to determine how much money you need on a daily basis and carry that amount in cash. Leave debit cards, credit cards, and checkbooks at home. (You can’t spend what you don’t have!)
There may also be a psychological benefit to seeing cash when it’s spent. Paying by credit or debit card tends to feel less “painful” than paying with physical money, making it easier to overspend. When you pay with cash, you have to watch the money leave your possession. This could make you think twice about what you’re buying and may curb some impulsive purchases.
#4. Budget as though you make less than you do.
This concept is often easier to understand and harder to actually live out. But if you budget your money as if you make less, you’ll inevitably have money left over after expenses.
This method gives you wiggle room for unexpected expenses and a great source of savings. Plus, it prevents you from running out of money before your next paycheck.
This system may require a few lifestyle changes to implement. If you’re used to living at a certain level, it can be difficult to make the transition. You may have to cut back on unnecessary expenses that you wouldn’t be able to afford with a smaller paycheck. These could include movie and TV subscriptions, food items that you could be getting for cheaper (or do without), eating out less, and other things.
This is a great plan to follow when you receive a pay increase. Instead of upping your expenses in tune with your paycheck, try putting away the extra money in a savings account and continue living as though you did not receive the pay increase. This serves the dual purpose of helping you live below your means and build a significant savings account.
Running out of money before payday is an awful feeling and a recipe for debt. But you can prevent that anxiety with just a little planning. In fact, the Generation Budget Calculator can help you determine where your money is going and where you could be saving yourself wiggle room so that you never run out of money again. Check it out!
Samantha Salazar is a University of Texas at Austin alum who has worked in the finance and marketing industry since 2011. She has a background as a CUNA Certified Credit Union Financial Counselor. She’s also a Class II graduate of the Latina Leadership Institute (LLI). True to her millennial nature, Samantha loves coffee, covers her home in hanging plants, lives a frugal lifestyle, and works hard so that her dog, Olive, can have the backyard she deserves.