Payday is great. Your checking account is full, and you finally have money to restock your shelves, buy the shoes you’ve been wanting and maybe go out to eat at a nice restaurant. You find yourself celebrating each payday, but then worrying the week after about how you are going to put gas in your car. Or if you are paid biweekly, you may stress at the beginning of the month when all the bills are due and then stress to make ends meet before you receive your next paycheck.
You have a budgeting and cash flow issue and possibly little to no savings. It’s possible that your debt has also increased without you knowing exactly how it got there so quickly. The normalization of using credit cards have lead to advanced consumption and makes your money seem to be decreased in value. According to a study by MIT’s marketing professors, Prelec and Duncan Simester, people buying tickets to sporting events would be willing to pay significantly higher prices using credit cards than they would for cash purchases. Some people may become consumers of impulsiveness when they own their credit cards. Therefore, it is increasingly common to see that people will run out of their money before their next payday.
This is not only a problem for individuals, companies also face the problem of knowing they are going to run out of money but having no idea what to do before then to prevent the inevitable.
Here are some tips to increase your ability to monitor your money that can both benefit your personal finances and in turn the health of your growing business.
1. Dealing with a Monthly Paycheck
Divide your budget into weekly amounts. This works best for groceries and entertainment categories. One fool proof option to do this is by switching to cash for those categories and having a different envelope for each week. However, if you are more inclined to using credit cards and technology there are several apps that will track your spending by category and send you alerts when you go over your normal set amount. Additionally, it can help to set it up to have your bills due at the beginning of the month when you know you will have the money to pay those bills. Dividing the remainder of your money into weekly amounts can help you manage everything.
2. Saving Up a Month’s Income
Another solution is to save up a month’s worth of income and to use that to cover the bills for the next month. This makes it easier to divide your spending up by week, and you will not be left feeling as stretched, especially if you break down your main spending categories into smaller ones. The envelope method can help you here, as well as a budget that maps out what you are going to spend when. You may want to take on a temporary second job in order to do this or you can use your tax refund or a bonus to save up the money quickly. Increasing your savings account will always help to relieve the stress of unforeseen circumstances.
3. Remember Your Budget Is Your Friend
Many of your cash flow problems can be solved by setting up a realistic and achievable budget. Writing out exactly how much you spend on everything and keeping track of where the majority of your money is going will help you put your cash flow problems into perspective. The spending plan you set up each month will stop you from spending too much on shoes so that you do not have to eat Ramen noodles for the last week of every month. If you are tracking your spending and sticking to your plan, you will keep your stress levels the same irrelevant of when your paychecks arrive and when your bills are do.
4. Don’t Forget Your Emergency Fund
We talk about emergency funds all of the time because they are one of the key tools to help you stick to your budget during life’s unexpected events. It needs to be there for real emergencies like an emergency car repair or an unexpected trip to the hospital. This allows you to absorb those costs without adversely affecting every other part of your budget. More importantly once you have used your emergency fund, it is important to replenish it as quickly as you can.
5. Make Sure It Is Not an Income Issue
If you are not making enough money, you will always be living from paycheck to paycheck. A budget will help you determine if you are making enough to cover your bills, food costs and basic necessities. If you are not making enough to cover your basic expenses, you will need to address your income issues in order to stop running out of money. This may mean changing jobs or going back to school so that you can qualify for a higher paying job. It is important to be proactive and make changes right away so that you do not run up additional debt that you will need to pay off.
These may all be very basic and general problems we all face on a daily basis. But before you can begin to consider taking on the responsibility of the finances of a business it is crucial to set these habits up for yourself from the very start. Entrepreneurs who run a new start-up business, they face even more difficult financial challenge as their business capital always mixes with their personal money in the beginning. Check out some of our client testimonials to learn more about how we helped the owners of Boston Bluestone right their personal finances and ensure that they applied all of their own personal budgeting habits to their business as well.