If you can't pay your bills
Setting up a budget can seem fairly simple, but a lot of people struggle or give up on following their plan as soon as they don’t make enough money to cover their bills. This seems to be especially true for business owners who can't rely on making the same amount of money from month to month.
A major car repair or a client who won't pay their bills can send any new business owner into a panic. Eventually, you'll have enough in savings to get you through longer periods of low cash flow. For now, though, you'll have to bring your spending down so that it fits within your income.
Start these steps as soon as you begin to have problems. The sooner you start, the easier it will be to adjust your budget.
One - Reduce your small expenses
Obviously, make the easy cuts first. For example, reducing your mortgage bill is fairly difficult to do on short notice, but reducing the number of channels on your cable subscription isn't. If you find yourself in a situation where paying your bills is about to become difficult, it’s time to figure out what you can drop. These are not emergency expenses, so it doesn't make sense to tap your emergency fund to pay for them. Eating out, movie tickets, and new clothes are also easy to stop buying for a while until you get back to your old level of income. Start here for some suggestions on how to lower your bills. If you can't decide when and where to cut, try The Cut Back Plan.
Two - Withdraw from your emergency funds
Figure out how much you need and withdraw this amount from any regular, non-taxed deferred investments. This includes stocks, mutual funds, and emergency savings accounts. Do not take money from a 401(k) or other kind of retirement account at this point. Also, make sure you are only taking out what you need; go back to Step One if you're in doubt.
Three - Withdraw from your savings account
If you’re taking out less than ninety percent of what you keep in savings, go ahead and withdraw a little more. After paying your bills this month, try to reduce your expenses and then reduce your withdraw by ten percent again next month. For example, if you usually take out fifty percent of what is in your savings account, but this month you come up short, withdraw an extra ten percent, for a total of sixty percent. Next month, go back to withdrawing fifty percent.
Four - Use a credit line
Every sales person and business owner has bumps in the road. If this happens to you, have a low interest credit card or home equity line ready to use. Only put what you have to on the card, and do not rack up a balance that is more than twice the total amount of your monthly expenses. If you're about to hit this point, move on to Step Five.
It’s time to acknowledge that you are living on credit. This is more than just a rough patch; you've run through your savings and there's still not enough income coming in. You need to start thinking about alternate ways to earn money.
Five - Take another job
By this point you've cut back everything you can think of, exhausted your savings, lived off credit for more than two months, and you still can’t get enough income to cover your expenses. While you might have just hit an economic slowdown or rough patch, it’s more likely that there are some serious flaws in your business plan. This doesn't mean giving up the business entirely. If you still want it to work, find a part-time job that won’t interfere too much with running the business. If you just need a bit of immediate cash to get you through an extended rough patch, click here.
Six - Apply for aid
If you can't find a job that covers the expenses you have to pay, it's time to get the money some other way. At this point, you've exhausted your savings, used all of your available credit, and you're working as many hours as you can find. That means it's time to turn to charity and the government safety net. While this is hard, it's important to remember that you've done everything else you can. Take only what you need, and keep working to reduce your expenses and earn money any way you can. Once you're back on your feet again, find a way to help or support the organizations that helped you.