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Not Enough Income to Cover Bills

How to balance your budget when your income is reduced and you spend more than you make.

I recently changed careers because I wasn’t happy doing what I was doing. I graduated as a mechanical engineer but wound up turning into an over-glorified salesman for an oil company instead. When I got passed over for a promotion, it was the last straw and I was done with it all.Now I have my dream job teaching kids to pitch at a baseball training facility. Pitching is something I’ve loved since I was a kid and it’s great being able to pass that on. It’s what I’ve always wanted to do but didn’t know how to get into. One problem – now I don’t have enough income to pay my bills. How should I plan so I can get ahead again?

Zach d. from Houson, TX

An expert answer from April Lewis-Parks

Hi Zach,
Nothing beats doing what you love – especially if you’re coming from a world where you were kind of forced into the career you had. I have to imagine you’re actually excited to wake up and go to work every morning instead of dragging your feet just to head to a job you hate.

Of course, the joy in that new job is certainly going to get cut into if you’re stressed about your finances. And one of the problems with pursuing your passion is often what we want to do doesn’t provide the paycheck we need. So if you like what you’re doing, you’re definitely going to have to make some adjustments.

First things first, you need to really look at the numbers to see how much you’re short each month and why. If you have a formalized budget, this will be easier. Otherwise, you can build one now:

  1. Review your income and expenses for the past three months.
  2. Break your expenses up into categories to help you calculate your average monthly spending.
  3. Compare that to your income to see how much you’re off.

Now, here’s another important thing to consider – your debt-to-income ratio. This measures how much of each paycheck is getting diverted to your monthly debt payments. Ideally, your ratio should be 36 percent or less. If it’s higher than that, then part of the reason you may be falling behind is that too much of your income is being spent on debt payments.

And that may actually be good news. Here’s why – credit cards are revolving debts. So the more you owe, the more you have to pay. When you have zero balances on your credit cards, you pay nothing each month. So if you have debt incurred when you were making more money, eliminating that debt will bring everything into balance.

Just by eliminating some of your credit card debt overhang, you may be able to balance your budget at least slightly. This means you could consolidate your debt to lower your payments so you can pay off your debt sooner and regain your control. If you don’t have good enough credit to consolidate on your own, a debt management program might do the trick.

You may face tough choices when you make budget cuts

Of course, that may not fix the problem completely, but it would give you a good start. However, you may need to make some tough choices about cutting back in other categories in your budget. Most people establish a standard of living for the income they earn, so if you were making six figures working for an oil company and you’re making half of that now, then you’re probably living too high on the hog for your income.

Find ways to cut back. You may be able to pack lunches and eat with kids you train instead of going out for expensive executive lunches that you probably took when you were in sales. Review your cell phone plans, cable package, and even insurance to see if you can reduce costs on flexible expenses.

And keep in mind that you may not need to spend as much on entertainment now that you’re doing something you love. Often people compensate for high-stress jobs with expensive hobbies, but it may not take as much for you to relax and decompress as it did when you were doing something that didn’t make you happy.

Good luck and give us a call if you need help.

April Lewis Parks
Director of Education and Certified Credit Counselor

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