You've got to know your 'monthly nut'That's the minimum you need to earn to keep ahead of your billsBy Gary Foreman
Dear New Frugal You,
Please
help me. All month long, I skip my daily Starbucks coffee, clip coupons and
avoid eating out. Yet the bills keep coming in, and I'm always short when the
big ones (mortgage, car payments and credit cards) are due. It seems totally
unfair. I'm trying so hard and don't seem to be getting anywhere. What can I
do? -- Frugally Frustrated
Dear Frugally,
I
bet that is frustrating. You're saving a dollar here, there and everywhere but
are still coming up short when the bills roll in. Let's see if we can't find a way
to solve it for you.
The
problem may be in something that a friend of mine calls "the monthly nut."
It's not an economic term, but it is memorable and descriptive. It describes the
amount of money that you owe every month, pretty much regardless of
what you do during the month.
For
example, each month your mortgage or rent is due, as is your car payment. Add
cable TV, Internet and health club dues. Then tack on the minimum payments on
your various credit cards, plus student loans.
You
could sit home all month, never open your wallet and all of those bills could
still be due. That's why my friend called it the monthly nut. Each month, you
need to crack that nut before you can spend or save for anything else.
The
problem could be that your monthly nut is simply too big for your paycheck. If
you're spending more than 35 percent of your take-home pay on housing, 18
percent on transportation and 10 percent on credit card or other debt payments,
you're going to have trouble.
Those
are the big areas, but you can also get into trouble with cable TV/Internet and
cell phone bills, health clubs or entertainment.
A
good exercise is to total up your ongoing monthly commitments. Subtract that
from your monthly take-home pay. What's left is available for food and every
other expense that occurs during the month.
If
you find that there just isn't enough money left, you can either continue in
your frustration or find a way to change things.
The
first places to look for budget changes are in your big monthly bills. Can
you refinance a house or car to a lower monthly rate? If the nut is big enough,
you might need to swap to a less-expensive car or move to a cheaper home.
Next,
look at the smaller monthly commitments. Are there any you can drop? Or at
least trim back? Don't assume that you can't eliminate these things. You'd be
amazed at how many people live without cable TV or club memberships.
Your
goal is to get these expenses to a level that you can sustain year after year.
Failure to do so will leave you with the same frustrated feeling.
If
you reduce your nut enough to have some extra money, consider doubling down:
Use that extra money in a way that reduces your future obligations. Pay more
than the minimum on your credit cards or pay off your auto loan sooner. By reducing the nut, you'll make every future
month easier. Anything that you do today will pay dividends for quite awhile.
On
the other hand, if you cut all you can and there's still no extra, you'll need to
look for ways to increase your income. Working a part-time job until you can reduce the
credit card balance or pay off an auto loan would reduce the size of your
monthly nut.
All
the while, you'll need to be extremely cautious about taking on any new
expenses. That "easy monthly payment" adds to your monthly
commitment, making it harder to have anything left at the end of the month.
My friend isn't an economist or a financial
planner. But he was right in recognizing the importance of keeping your ongoing
monthly commitments low. A smaller nut is easier to crack!
See related: 10 ways to get extra cash, How to diagnose your financial health
For more than 35 years, Gary Foreman has worked to help people get the most for their money. Prior to founding The Dollar Stretcher.com, he was a financial planner and purchasing manager. Gary began The Dollar Stretcher website and newsletters in April 1996. Today the website features more than 6,000 articles on different ways to live better for less. Gary has been interviewed by The Wall Street Journal, The Nightly Business Report, USA Today, Reader's Digest and other newspapers and magazines. Gary answers a question about a budgeting or saving issue from a CreditCards.com reader each week.
Send your question to The New Frugal You.
Published: August 4, 2011
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