Today we discuss the final Rule of Cash Flow. Rule Four.
When my wife and I first married, we worked part-time at the university where we attended school. Part-time work on a university campus equals, well, not a lot. I wasn't TOO worried about things, but the fact that our finances would be tight did inspire me to implement the Four Rules.
Everything seemed fine, but our variable income was causing problems. Our hours worked could change based on many external factors.
How do you budget when you don't know what you're going to make? While a lot of financial gurus will suggest that you forecast, then prioritize your expenses and always pay the top ones first, there is a better (initially harder, more fulfilling, and eventually easier) way. You Live on Last Month's Income Now I'm going to spend the rest of the time trying to convince you that it IS a good idea.
I know you're likely not there yet. This Rule is something you work toward. It's a goal.
How did we, two struggling college students do it? I'll admit, we had it kind of easy. Our wedding had just happened a few months before, we had wedding money sitting in our savings account. I withdrew enough to get us through March without touching March's paychecks. That's exactly what I'm going to ask you to do. You need to make it through one month without using that month's paycheck(s). Some intensity may be required.
If you want to stop living paycheck to paycheck, and enjoy the benefits of MUCH more flexibility in your finances, if you want to be able to budget easily and accurately, you'll want to do this.
The trick is to make it an entire month without touching your paychecks. How do you manage to get by for a month without touching that month's paychecks? Well, that's pretty much entirely up to you. I'll give you a few ideas to get you started. The key is INTENSITY. For the short-term, virtually ANYTHING is possible. Remember that! This is a sprint, not a marathon!
-Work overtime if your job allows it. Put in as many hours as you possibly can.
-Get a part-time job. You can make a thousand bucks a month working 80 hours in a month at a part-time job. Think pizza delivery, UPS, painting, lawn care, house cleaning, etc.
-Have a garage sale. That's right - get rid of the junk you don't need. Sell everything you forgot you had. People sometimes make enough from their garage sale to skip that month's paychecks entirely. Typically you make between $500 and $800.
-Negotiate your credit card rates down. Threaten to switch to other card providers. This can lower your minimum payment, substantially freeing up the extra right now for your buffer fund.
-Ask for a raise. Have you been an awesome employee? Do you truly deserve a raise? Then you should ask for one.
-Cut out your entertainment (keep thinking short-term here).
-eBay & Craigslist. Like a garage sale, but with a wider audience.
-Car pool. Sure it might be a bit inconvenient, but imagine if you could cut your gas bill in half!?
-Brown bag it. Don't eat out at all. Remember, a short-term solution for long-lasting rewards. Sacrifice! (You'll probably trim down a bit too - I know I tend to trim UP if I eat out a lot). You may need to brown bag your dinner as well if you're working overtime!
-Cash in vacation. Sacrifice a few vacation days for your peace of mind. Many employers will allow you to cash in your vacation.
-Is your tax refund on its way?
-Save all windfalls. You do get windfalls. They happen. Stash 'em.
-Cut your phone bill. Do you have a cellphone where you could get out of the contract inexpensively? Remember, it's a short-term solution for long-lasting peace.
-Sell your car. Perhaps, you have a car that is way too expensive considering your current income. Sell it! Even if you owe more money on the car than it's worth, you can refinance the difference (provided your credit is decent), which frees up some extra dollars. Remember, once your budgeting foundation is built, that debt will be destroyed.
-Don't go to the mall. Seriously.
-Cancel cable, satellite, etc. Seriously.
Based on my surveys, it takes an average of four months to get one month ahead. Think of that, what you earn in February, you use in March.
Remember, you can still follow the Three Other Rules, I just expect you to be working toward Rule Four. Pronto.
The advantages to living on last month's income are much further reaching than just eliminating the variable income problem of budgeting. When you are not living on the edge you are less stressed, healthier, sleep better, make wiser financial decisions, and enjoy a better relationship with your spouse. Life is BETTER. You no longer have to time your bills with your paychecks, saving you hours of time each month! Keep those benefits in mind as you're scrimping by without cable, eating brown bag lunches, and throwing everything extra toward Rule Four!
Take a moment to write down what you will do beginning NOW to get out of the paycheck to paycheck rut to be able to live on last month's income. Get crazy if you need to.
Rule Four is an important point, and absolutely vital if you want to have an easy, intuitive, cash flow system. Write down three things you can do in the next 24 hours to build a cash reserve that will get you through a very lean month.
Write down two more things you can do within the next 30 days to significantly build that reserve. P.S. I hope you're enjoying this 9-day course! If you'd like to purchase YNAB, you can do so through this link. | If you no longer wish to receive our emails, click the link below: Unsubscribe YouNeedABudget.com 770 E Main St. #236 Lehi, Utah 84043 United States | |
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