How to Budget if You Owe More Money Than You Are Bringing Home

Budgeting helps you make smart decisions with your money.

Budgeting helps you make smart decisions with your money.

It's easy to keep track of spending when you have only a few expenses each month. As your expenses grow, however, it becomes much more difficult. If you aren't careful about how you use credit cards, or if you borrow heavily to finance large purchases, you might end up in a situation where you owe more than you make every month. When this happens, sit down and do a formal analysis of your income and expenses.

List the amount of money you spend during the month for all purchases and expenses. Some of these items are easy to identify: your rent or mortgage, credit card bills, car payment, electricity bill, phone bill, cable bill, gasoline and grocery purchases. Other expenses might be harder to identify, however, such as the money you spend going out for dinner or drinks. If you're unsure of the amount you spend each month, keep all of your receipts and make a list of everything spent each day for a month.

Group your purchases and expenses into two categories -- essential and non-essential. Essential items are those that must be paid such as housing, utilities, car insurance and health insurance. Food purchased at the grocery store qualifies as essential, while snack purchases at work are non-essential. Many clothes and entertainment expenses are non-essential as well.

Rank the items in the non-essential and unnecessary category according to the importance you put on them.

Make a list of the money you bring home each month from all income sources. Total your income and see if it covers your essential items. If so, then use whatever money is left over to pay down credit card debt. Eliminate all other expenses, even if it means you can't go meet friends out for awhile, take a vacation, or purchase new clothes. If your income does not cover your essential expenses, then see if there are areas you can cut back on, such as using coupons to save money on groceries or carpooling to work to save money on gas. If you are still coming up short, you might need to find additional sources of income.

Make a list of new sources of possible income each month. This might include taking on a second job and/or asking for a raise at your main job. Look for opportunities helping family or neighbors do tasks normally hired out to others. Estimate the amount of income possible from these sources.

Locate a second job or part-time work to supplement your income. Place the money from this employment directly into your essential expense fund for the month.

Make a list of items you own that you rarely or never use and have cash value. This list might include a bicycle you never ride, unworn jewelry, sports equipment or items you've collected. Sports cards, comic books, vinyl records and toys can bring significant cash in some markets.

Research the potential income from selling your items and put the items up for sale on Craigslist, eBay, or through a garage sale at your home. Apply cash from the sale of these items directly to credit card debt and your loans with the highest interest rates. If you don't have this type of debt, use the cash for necessary monthly expenses.


  • In some cases you might need to make big changes to meet your budget. For example, if your rent is too high, consider moving in with friends or family for awhile. Reductions in the essential category, even when temporary, help equalize the cash flow in and out of your bank account.

About the Author

*I have written chapters and articles for Oxford and Harvard University Presses, ABC-CLIO, and others. Arcadia Press published two of my local history texts and I have also written for numerous "article sites," including Pagewise in 2002. My "How to become a...real estate agent" is available as an online text from a Canadian publisher. *I taught writing courses at a branch campus of Indiana University. *I held a California real estate license and have remodeled four of my own homes and advised others on financing homes, repairing credit to qualify for loans, and managing construction (including meeting local, state, and federal regulations for restoration and development grants). *I served as an AmeriCorps*VISTA volunteer and wrote nearly $75,000 in small education grants (under $1,000). *My travels include frequent road trips in Canada, Mexico, U.S., and Europe. I attended school at Cambridge University and used this as a base to explore the UK and Europe.

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