The other day I heard someone make the argument that most financial advice was of no use to them because it assumes that you have some extra money, you just need to “find it.”
“I literally have no extra money,” this person said. “Every dime I have goes to the mortgage, food, or the utilities. These financial people assume that if I just cut out the lattes and the frivolous shopping that I could save money. I don’t do any of those things and I still have no extra money. I can’t pay down my debts and, in fact, have to keep incurring more debt in order to live because I make such a small income. I have no choice.”
It’s not uncommon to feel as though there is no extra money to save or pay down debt. Many people feel like they’re up against the wall financially. They feel like they have no extras, no life, and still can’t get ahead. At first glance, it seems to be a legitimate problem. There’s no money for necessities, so how can there be money to save or pay down debt? I would argue that it is a legitimate problem — sometimes.
Sometimes you run into circumstances beyond your control that force you to live above your means temporarily. Maybe you’ve been getting along just fine and then a big medical bill hits. Or you have to repair the roof right after you had to replace the air conditioner and your emergency fund was depleted from the first problem. These are things that can strike anyone at any time and unless you are adequately prepared, they can force you to spend more than you earn. Maybe you even choose to spend a lot more for a time, such as is the case when you decide to return to school so you can ultimately get a better job. However, if you were living within your means before the problem, most people can cut back for a while, catch up, and then soldier on.
But what about people who chronically live above their means and complain that there is no other choice? I would argue that this is a big justification. You may make a small income. Many people do. You many have a lot of expenses. Many people do. However, if you ever hope to be financially sound, you have to adjust to living within whatever income you do make. It isn’t easy. It may mean moving into a smaller place or to a less desirable neighborhood so you can afford the rent/mortgage. It may mean that you never own a car that has less than 100,000 miles on it when you buy it. Your life may not be that fun, but simply incurring debt for the rest of your life isn’t a realistic option, either. At some point it will catch up to you and you’ll find yourself in deep financial trouble.
So what do you do if you, “Literally have no extra money,” as the person above says? The first thing to do is to audit your expenses by writing down every single thing you spend money on in a month. Many people say they’ve cut out all the extras but upon auditing their spending, discover that there are still quite a few “extras” floating around. Maybe it’s that quick meal out you grabbed on the way to soccer practice, or the two magazines you threw in your cart at the grocery store. Maybe it’s the toy you bought to quiet your child in the store. Maybe it’s the cigarettes, lottery tickets, or alcohol you insist on buying even though you know all of them are bad for you and your finances. These things slip by unnoticed because they are part of the fabric of your daily life. However, if you are really strapped for cash, you cannot spend on any unnecessary items, no matter how much you may want or like them. You just can’t. Chances are you can find at least some money this way.
The second thing to do is to make the hard cuts and choices. It may be
time to admit that you really can’t afford the rent or mortgage on your current place and that you have to find another, cheaper place to live. You may even have to admit that you cannot continue to live in a high cost of living area and move. You may have to sell the nice car and settle for a clunker. It’s probably time to give up all forms of pay TV, cell phones, and any unnecessary gadgets. It may be time to sell some of your possessions or heirlooms to bring in extra cash. You may even have to give up a pet if the expenses are unmanageable for you. You have to get crazy about cutting your bills in every area of life including utilities, food, and clothing. When you “literally have no money,” nothing is sacred. Everything is up for sale, cancellation, or renegotiation. It hurts and it stinks, but if you have nothing to spare and every cent you earn plus more is going out every month, then some things have to go. You may have to adjust to a bare bones existence.
Finally, you can’t live like this forever. Well, you can, but chances are you don’t want to. You have to find some way to bring in more income. Maybe it’s time for a partner to go back to work, or to increase to full time from part time. Maybe you need a second job. Maybe you can do some freelance work, either in your field or in something like housecleaning, lawn care, or home maintenance. You do whatever you can (that’s legal and ethical) to bring in more money. Even if it’s just a little bit, it will help. If you can find a scholarship or employer to pay for you to go back to school, do it so you can get a better paying job. If you’ve cut your expenses to the true minimum, then your only other choice is to make more money. Yes, it’s tiring and no, it’s not fun. But it’s the only way to keep your head above water.
True story: I know a guy who never made more than $40,000 per year at any job in his life. Most of his earning years he earned between twenty and thirty thousand per year. Yet he managed to have a wife and two kids and retire with over $1 million in the bank. How? He lived very frugally his entire life. He never spent more than he earned on anything. Yes, it meant that his kids didn’t wear the latest and greatest. He didn’t live in a big house in a fancy neighborhood. He didn’t drive a nice car. It meant that, “vacations” consisted of tent camping or local outings. They rarely went out to eat, he never wasted anything, and he did a lot of things for himself rather than hiring them out. He banked every spare cent he could find including tax refunds, rebates, spare change, and gifts. When offered, he took full advantage of pensions and 401(k)’s to save for retirement. Some people would call him poor or disadvantaged. He never considered himself that way.
“I knew I earned $X amount of money,” he told me, “And that’s what I had to work with. I never thought about how great it would be if I had more money, I just made it work on what I did have.”
It may seem that I’m being harsh in this piece. Maybe I am. But it’s a simple fact that the only way to be financially sound is to live within whatever means you earn. If you only earn a small income, then you have to adjust your life accordingly, at least until your income goes up. It will likely mean that your life is not what you hoped for or what many of your friends have. It probably isn’t going to be fun. However, your life will be even more miserable down the road when you can no longer work and you have no choice but to rely upon government assistance or you are so deeply in debt that you have no choice but to go bankrupt. You can make it work on whatever you earn and financial advice can help you. You just have to stop justifying and complaining and get out of your own way, start making the necessary sacrifices, and learn to live on less.