If you’ve got a budget, then odds are at some point in your life there will be more money in the expenses column of your budget than the income column. Things like joblessness, a return to school, or parental leave are totally normal reasons for this to happen. In fact, my household is going through this right now: until my husband finds full time employment, we’ve got more money going out than coming in. Regardless of what causes this situation, it’s important to know how to handle it. Here are my top recommendations for handling a temporary budget deficit:
This is probably the most obvious option. When you’ve got more money coming out than going in, try and reduce your spending. If you’re in a short term budget deficit like I am, this might not be so easy. After all, all of the big expenses like rent and utilities are fixed and can’t be altered over the short term. That said, there is lots of leeway in the average budget to reduce expenses. Try cutting your food budget by 20%. It’ll probably be tough but manageable. On top of that, suspend savings programs for things like trips or furniture, and forget about splurging.
To help mitigate my budget deficit, I’ve eliminated all planned savings like retirement and travel, and we’re sticking to a very strict grocery budget. Although it’s tempting to buy things for the apartment (we desperately need a set of dressers) I’m being strict about any extra spending like this as well.
Another way to eliminate, or at least minimize, the budget deficit is to increase your income as much as possible. You can ask for a raise, start or expand your side hustle, or do odd jobs or sell things on Kijiji to earn extra cash. In my case, I’ve been hustling pretty hard to make up for the budget deficit, and fortunately I’ve been able to keep up with our retirement contributions entirely from my side hustle income. This makes me feel great because I don’t feel like I’m falling behind on retirement at all.
Save in Advance
If you know in advance that you’ll be in a budget deficit for more than a few weeks, it’s a good idea to save up some extra cash to cover the shortfall. For example, if you know that when you take parental leave for six months you’ll have a budget deficit of $500/month, you should save the difference ($3,000) in advance. In fact I would add another 10% to that for cushion, for a total of $3,300.
In our case, I knew that my husband would be unemployed after our move to the big city, so I saved up some cash beyond our regular emergency fund to make up for the difference. Just how much did I save? Well, I got a little carried away and saved enough to cover the deficit for a year. Today, we could afford to have my husband unemployed for another 47 weeks before this “reserve fund” is depleted. Obviously we’re hoping he’ll land something long before that and we can put that money to better use, but knowing we could last that long before having to touch our emergency fund is very comforting.
Don’t Let It Become a Habit
Going through periods in your life where your income is less than your expenses is entirely normal, but if you find this is happening when you’re employed full time and otherwise not in any extra ordinary circumstances, then you’ve got a problem. If your expenses are exceeding your income on a regular basis, then you can apply the tips mentioned above, but you need to take it to the next level. Instead of just trying to decrease your variable expenses like grocery spending, you need to find a cheaper place to live or sell your car. Instead of just asking for a raise, you need to consider a new line of work that will compensate you better.
Learning to live within your means is step one of successful personal financial management, but ironically it’s the step that 90% of people seem to struggle with the most. If you can master that skill, then you’ll be prepared for those few times in your life where you’re spending more than you make.