Beating Broke

Personal Finance from the Broke Perspective

You Are Your Own Worst Enemy

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When it comes down to setting your budget, saving your money, spending your money, and acting responsibly with money overall, you are your own worst enemy.  You and only you are responsible for keeping your self-made goals.  There are tools that you can use to help yourself, but the only enemy that you need to worry about is yourself.

Your spouse is not responsible.  Let’s assume for a minute that you don’t have a spouse that is running around buying up all the $700 pairs of shoes in town.  Stop blaming your spouse.  He/She is not responsible for the debt that your in, your blown budget, and your lack of an emergency fund.  Your spouse, however, is an excellent tool to use to overcome all of those problems.  Get on the same team as your spouse.  Your spouse can keep you accountable better than anyone else.  Discussing the finances with your spouse is a good thing.  Get them on your side.

The Credit Card companies are not responsible for your debt and the lack of paying it off.  They may hold the note on that debt and encourage you to use your “credit”, but ultimately, it is you that uses it.  And it’s you that chooses to sign the receipt.  And it’s you who chooses to continue to carry that plastic in your wallet. If  you can’t use credit cards responsibly as a tool, get rid of them.  No Excuses.  Everytime you sign the slip, you accept responsibility for the damage you’re doing.

You have taken responsibility for so many of the things in your life from feeding yourself (I assume) to cleaning yourself (assuming again) and even to dressing yourself (yep, assuming.).  Why, then, do you blame everyone else for your financial woes?  Would you blame them if you fed yourself cardboard?  If you tried to bathe with sewer water?  Or if you forgot to put your shoes on and walked on sharp stones?  No, you wouldn’t.  Stop trying to pass the blame for your monetary faults to someone/something else.  Your actions are directly responsible for where you are.  The moment you take responsibility for those actions and their results is the moment you are free of their bindings.  It’s the moment you can begin to feel free of them and can begin to correct them.  And once they are corrected and you have broken those old habits, you will be free to develop new habits that will set you free from that old life.

Take responsibility.  Change yourself for the better.

Avoiding Reactive Personal Finance

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Just what is reactive personal finance?  It’s the management of your personal finance in reaction to events or situations as opposed to the management of personal finance in anticipation of events or situations.

The best example of this is a budget.  A budget is built and held to in anticipation of events in your financial life.  You know that things like your electric bill and water bill are going to be coming and roughly how much they  will be.  That allows you to budget for them and set aside money to pay for them with.  A budget is a great tool in avoiding reactive personal finance.

Why do we need to avoid reactive personal finance?  Because reactive personal finance is disruptive.  You are managing and spending your money in reaction to the events that are happening.  Doing so can cause you to quickly lose control of your finances and find yourself in a downward spiral of poor management choices and, eventually, it can lead to you being broke.

Some examples of events that can cause you to become reactive.  Medical emergencies, blown tires, unexpected social events, and even bills that are larger than they normally are.  Any thing that is unexpected can cause you to spend in a reactive manner.  And when you have events like that, it can often lead to larger problems, like overspending on luxury items to make you feel better.

How do you avoid reactive personal finance?  No plan is foolproof, so it’s not really completely possible.  However, you can make the odds of it happening be cut drastically.  How?  An emergency fund and a bit of willpower.  The emergency fund will give you the available spending power to cover any emergencies that would normally make you spend in a reactive manner.  Instead of trying to react and borrow from somewhere else to pay for the emergency, you can just pay from the emergency fund and not need to react any further.  The willpower comes in where the spending opportunity isn’t an emergency.  You have to have the willpower to avoid last minute and spontaneous spending that could drain your funds and cause you to become reactive when you no longer have the money to pay bills or buy necessities.

The best laid plans often go askew.  But, building an emergency fund and strengthening your resolve can go miles towards avoiding reactive finance and potential disaster.

Whoops. Forgetting to Pay Bills = Bad!

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They weren’t exactly forgotten, but unpaid all the same.

Our habit for doing our budget and paying bills consists of throwing everything in a pile and then sorting through the file when we sit down to enter all the data for our budget into the spreadsheet.  One of the first things we do is go through and find the unpaid bills and pay them.  When we sat down to do budget last night, we found our mistake.  One of the bills was sitting at the bottom of the pile.  Not a big deal, until you consider that we hadn’t been doing very well on regular budget checks and the due date for the bill had come and gone already.  Ouch.  To make matters worse, it was a credit card, so we’ll see what kind of late fees and default rates we end up with next month.

Lesson learned.  From now on, we’ll be paying bills as they come in instead of letting them wait until we do our budget work.  The other thing that I’ve been contemplating is to set most everything up on automatic payment systems.  I’ve been super hesitant to do this before because part of our financial history is a history of not having the money to pay our bills.  So, my fear has always been that if they come out automatically, the money won’ t be there, or the money won’t be there later on to pay for something more important.  Now that we’ve taken on budgeting and a much higher control over our money, that really isn’t a valid fear anymore and we could probably set up some automatic payments.

How do you all do it?  Pay as they come in?  Automatic deductions?  Or do you pay them at a set day or event?