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When your income doesn't cover your expenses

Posted September 14

Calculator & budget

What is your "monthly nut" and why is it important to cover it? Read on about making sure your monthly expenses are in check with this article by Gary Foreman of The Dollar Stretcher.

When Expenses Exceed Your Income

By: Gary Foreman

Sometimes we can take an idea from one field and apply it to another. For instance, there's a concept that successful small business people know. That is that you need to focus on covering monthly expenses before you begin to pay yourself. In some circles, it's known as covering your monthly nut.

It's a key issue. Before you open your doors for business on the first of each month, you know roughly how much you'll be spending on rent, utilities, insurance, wages, and licenses. You'll have those expenses even if your sales are zero for the month.

Your first monthly goal is to earn enough for covering monthly expenses. After that, you can worry about paying suppliers and still later about paying yourself.

The same concept applies to the average person. You have a monthly nut, too. There are a certain number of expenses that occur each month just like clockwork. Regardless of your activities that month, you'll face those bills. For most families, the monthly nut includes rent/mortgage, utilities (electric, water, phones), a car payment and insurance.

Many of us have added other things to that monthly nut like Missy's ballet, Junior's kung fu lessons, Mom's yoga class at the gym, and Dad's monthly golf game.

Then there's the minimum payment on the credit card accounts. And, the 26 months of boat payments still due. All those expenses pretty much happen automatically.

Ever wonder where your money goes? Take a few minutes now and list the commitments on a piece of paper. Total your monthly nut. It's not uncommon for families to have $1,500 to $2,000 or more per month already spent before the month starts.

OK, so now that everyone's depressed, what's the advantage of knowing about a monthly nut? What can we do differently?

The first exercise is a "what if" game. For instance, what if I lost my job and had to live on unemployment compensation? After covering monthly expenses, would I still have enough left over to feed myself? Or, what if my company went on a 30-hour work week? Create your own variations.

The next exercise asks the question "Is that still true?" Circumstances change. Sometimes the product or service that we needed yesterday is not necessary now. For instance, there was a trend to drop the home landline as more people got cell phones. In this game, you look at each item in your monthly nut and ask yourself do you still need it.

A third question for this game is "Have my needs changed?" We still pay for basic cable but determined we weren't viewing most of the channels within the more expensive tier we originally subscribed to. Dropping that tier saves a few dollars each month. Or carrying collision insurance on an old car might be a mistake. Look at each monthly nut item and see if you would buy a different package today. If so, ...... To read the rest of the article, please head to Stretcher.com HERE.

My thanks to Gary with The Dollar Stretcher for sharing this excerpt. See Stretcher.com. for many more frugal living articles.

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