$300 is not a lot of money in the grand scheme of things but for so many, it might as well be a million. They live in fear of the unexpected and all too often, it happens. The emergency could be an unexpected auto repair bill, a sudden illness or even a simple spike in the electricity bill. When it happens, you better be prepared.
The problem is that so many people are not prepared to handle a very basic emergency. This is one of the things that has given rise to a huge subprime lending industry. Got a small emergency, take out a $300 payday loan, problem solved. Problem is that these loans come with huge fees and can often leave you worse off than you were before.
Let’s take a look at why such a small emergency can break the average person and then see how to take steps to change this.
Living Outside Your Means
This is usually the reason that people can’t handle even a small $300 emergency. They are living beyond their means. This means that every single cent of their paycheck is going to support a lifestyle that they just can not afford.
This is a phenomenon that is very common and very easy to get trapped into. People often tell themselves that things will get better when they start making money but when the extra money comes, they find a way to spend it. The result. Broke two days before every check and counting the hours until their next payday.
No Emergency Savings
You have probably heard the phrase, pay yourself first. Yes, it is an annoying little phrase but it is true. You need to have a savings account and you need to pay into it before you pay your bills.
So, if your take home pay is 4000 dollars, you should take 800 dollars right off the top and put that into savings. Then take the remaining 3200 dollars to live off of.
So many people fail to do this however and wind up with little, if any money in savings. The result is that a simple root canal or needing a new set of tires can financially wreck so many people.
Too Much Debt
It is fairly common for people in this country to be carrying 10,000 to 20,000 dollars in credit card debt.
This is an insane amount of money to be paying 17 percent interest (the national average) or more on. Carrying this much debt can cause you to have to spend a large chunk of your budget on just minimum payments that get you nowhere.
No Plan Of Attack
Let’s face it, emergencies happen and when they do, you need to be prepared. This is particularly true when it comes to money.
Nobody likes to think about the financial emergencies though. They know that their finances are in bad shape and they don’t want to think about what can happen. The result of this is that an emergency expense can really sap their checking account and not leave enough money till payday.
Coming Up With A Solution
Okay, so now that we have the problems that can make a simple $300 expense a budget breaker, let’s find a way to fix the situation. Here are some things that you need to do to get on a stable financial foundation.
1) First and foremost, you need to start living within your means. This means buying things that you can afford and not trying to keep up with others. There is always going to be something that you want but just can not afford. Keep it in reality and stick to living within your income, if not a level below.
You might see people having a great time and buying things that you would like but play your own game. These people might even be coworkers with seemingly comparable incomes. You do not know what their finances are however. They could be swimming in debt.
2) Next, you need to start a savings account with 20 percent of your take home pay. This will also help you live within your means. Take your take home, after taxes pay and set aside 20 percent for your savings.
Now, take the rest of the money that you have and divide it into your other expenses. This might take some big changes. It could involve you getting a cheaper vehicle or even moving to a less expensive home. Tough choices for sure but these are hard decisions that need to be made to get on track and get that budget in line with reality.
3) Third comes getting a plan to pay off that debt. Making the minimum payments only can cause you to pay on your cards for over a decade and cost you thousands in interest.
The first part of your plan needs to be ceasing to use your credit card. Cut them up or at least put them away so that next time you are interested in charging something you can not afford, you will not be tempted. No more charging an apple watch, paying for a dinner with a card or even financing a new puppy on credit.
Next, come up with a plan of attack. The most effective way to pay down debt is to pay the minimum on all cards except for the highest interest one. On that card, pay off as much as you can. Once it is paid off, move on to the next highest interest card. Paying off your debt in this fashion will allow you to reduce the interest that you pay.
4) Finally, you need to come up with a plan of attack. What would you do if an emergency expense happens, because they will.
Hopefully, this emergency will be for only $300 but they can come in all sizes, it could cost you more. Know how to handle these things when they happen so that you can jump into gear immediately.
Figure out which bills you could reduce or eliminate entirely. Also know what property you could sell, if needed and where to sell it. And finally, know where you could pick up some temporary additional income to get you through a rough spot.
Have all of this stuff figured out in advance and you will be able to jump right into action when the worst happens.
If you find yourself living paycheck to paycheck without a dime in savings, you need to make some hard decisions. Getting that budget in check may not be fun but it is the only way to secure your financial future.
So, get your cost of living in order, start a savings account, pay down that debt and have a financial plan. It will be rough at first but you can do it. Once you are done, you will not only be able to handle modest $300 surprises, but will also be able to think about retirement.