Running out of money is a common occurrence in a bear market such as 2022. It’s especially common when personal savings rate hit a decade low of 4.4% for April 2022. When you constantly feel like you don’t have enough money every month, it’s time to do something about it.
America is the wealthiest and richest country in the entire world. Our GDP numbers prove that to be true. However, even in the richest country in the entire world, there are many who are struggling financially. That’s not right. Some 40% of Americans can’t come up with a $400 expense.
What! $400 is a lot of money but the vast majority of Americans should be able to come up with a $400 surprise bill that comes their way. There are many people who are struggling even with a high income. The statistics are that 33% of Americans making over $250k are living paycheck to paycheck.
There are instances where people are running out of money at the end of every month, no matter how high their income is. It happens and people aren’t alone in doing so. There are many steps that you can take to prevent this from happening in the future and making the situation even worse.
Whether we like it or not, we are going to experience recessions in our lifetime. It’s not going to happen every year but we do have to be prepared for it. It’s inevitable. Therefore, padding up emergency savings and investing for a rainy day down the road is crucial.
What To do if You’re Running Out of Money
One thing you can do if you’re running out of money is to SMASH that social share button and post to your favorite social media! Your friends could need help as well.
So with that said, let’s go over the things to do if you’re running out of cash!
1) Review Your Essential Expenses Budget
Your essential expenses budget exist to give you a sense of how much your life costs to exist. It’s the bare bones budget where you get down to the bare minimum of what you need in order to survive. If you’re running out of money, this is an essential number to keep in the back of your mind.
My essential expenses budget is personally running at around $2,000 per month. If I make $2,000 per month for the rest of my life, I can still live. I have food on the table and a roof over my head. Also, in actuality, I spend even less than $2,000 per month just to live. $2,000/month is a conservative number.
Being able to meet this bare minimum expenses number is crucial. Some people go through life without knowing this number and hope that everything works out great by the end. That shouldn’t be the case. This is a number that you know you need to hit every month in order to survive and not run out of money.
2) Pay Your Living Expenses
Now that you know how much you need in order to survive, now it’s time to actually pay the living expenses off. The biggest necessary thing is that you should have a surplus of cash leftover at the end of the month. Your living expenses should not be 100% of your cash flow from your job.
There has to be a margin of error in case something goes wrong. The more margin of error, the better off you are. There are living expenses such as transportation, eating, phone bill, internet, water, electricity, and the like. Then you can choose what to spend on afterwards on miscellaneous expenses and should have savings leftover.
Some people choose to spend their money first and then figure out a way to pay their living expenses at the end. That’s not right. it should be the reverse of that. You should figure out how to pay off your living expenses first and then figure out how to spend the leftover money.
3) Cut Back on Spending to Stop Running Out of Money
If after paying off the living expenses, you don’t have any surplus money or not as much surplus money as you would like leftover, then it’s time to cut back on spending. Remember that saving money is better than earning more money in the beginning. The reason is taxes.
If you save $1,000 per year, it’s the equivalent of making close to making an additional $1.2 – $1.5k per year, depending on your tax bracket. People become bankrupt not because they save too much money but because they spend too much money. They take on more debt than they actually need or afford.
When I first started out my FIRE journey, I saved and scrimped as much as I could. I lived in one of the worst apartments in the entire city and paid just $750/month for the apartment. Spending less money is the way to stop running out of money and live a better life, contrary to what corporate marketing departments say.
4) Earn More Income
Now that you cut back as much expenses as you can, now it’s time to earn more income. These days, there are endless ways and opportunities to earn more income. The internet equalized the playing field more than anything else. For $50/month, you can create a profitable online business and scale that as the time passes.
Running out of money isn’t a problem if you just earn more income. If you can’t make more money through a side hustle, then it’s time to increase your earnings from your day job. You can either find another job that pays more or you can manage your manager and try to earn a faster or better promotion.
Whatever it is, it’s time to earn more money. There are 104 weekend days in a year, not including holidays. If you’re having money troubles, then it’s time to productively spend those days in order to move up in life. Results favor those who actually put in the effort and the work.
Some weekends should be to relax. Other weekends should be on getting ahead.
5) Don’t Put Yourself in the Position Again
If you were running out of money, it’s time to keep tab on how you got yourself in that position in the first place. Then it’s time to never put yourself in that position ever again for the rest of your life. Not having money feels awful. I’ve been poor and I’ve been rich and being poor made me feel awful.
Living in a really bad apartment only to save 90% of my paycheck was demoralizing. I lived paycheck to paycheck for a solid 2 – 3 years out of college. The days were long and the months were even longer. Getting to a position where you’re constantly running out of money feels awful.
You can use this as a reminder to not put yourself in this position again for next time. The pain of not having money should overcome any amount of joy you feel from spending money. Sacrificing today for a better tomorrow is a great way to live. Because you’re looking at the long term.
6) Be Honest With Yourself
If you’re running out of money, honesty matters here more than feelings. How did you actually get put in that situation? Some things are definitely out of your control. I got in a car accident in early 2022 and it’s been difficult financially in order to get a car, get treatment, etc.
In other cases, it might be that there were some bad choices that you made that got you in this situation. It’s time to be honest and figure out the root cause of the problem so that it isn’t repeated in the future. Then afterwards, it’s time to be honest with your budget to see what you can really cut out.
No one needs to have a car that costs $800/month payment. No one needs to eat out every day and spend $100/day. There’s no need for that. You can have a happy and fulfilling life without practicing excessive consumerism. It’s all posssible.
Be Smart, Running Out Of Money is Scary
The couple below retired ~30 years ago with $500k saved in the bank. They actually almost ran out of money in 2007-2008 where they were seriously considering going back to work. Imagine going back to work after being out of the workforce for a good number of years.
The job market was looking bad, too so it’s not like they could’ve easily found a job. It worked out fine for them in the end because they didn’t need to go back to work but that would’ve been demoralizing. To achieve FIRE status only for life to have a different plan and be forced back into work.
Running out of money is scary. There are people out there who couldn’t find a good job even as they were running out of money. What do you do in this situation? CFO Adam Smith is a great example. At one point, he was pulling in a great income of $200k/year with $1mil in stock options.
Then he couldn’t find a job after posting a viral video with significant backlash and had to be on food stamps. Rise and fall from grace happens. We think we’re invincible and immune to any external shocks that happen to us, until we’re no longer immune from them.
It’s scary to be put in this situation. It’s one where fear can play a great role in setting us straight. Natural disasters can happen to you and ruin you financially with one stroke. Or someone may be driving badly and cause a life changing injury to you. Life comes at you fast.
My Running Out of Money Story
I started a new job in January 2022 when my last job ended in December 2020. There was about a month of time when I did not have consistent income coming in my bank account. On top of which, I got into a car accident in which I had to pay $14k to buy a used car with 80k miles on it to replace my car.
And on top of that, I had to move to another city. I was running out of money quickly. It was a very uncertain time for me. I even had to sell off investments in order to fund my lack of cash. Eventually, the insurance company made me whole and I got fully reimbursed by the end.
However, the uncertainty still didn’t feel good. It doesn’t feel good when you feel like your back is against the wall and you’re running out of money. It was even worse because it happened due to someone else’s fault. After that incident, I vowed to never be in that position, ever.
I felt powerless. Whether we like it or not, we define money as a sense of power to our psyche. It’s how much goods and services we can buy. I felt trapped because any wrong move could potentially ruin me. Now, I’ve padded up my savings to have a year’s worth of expenses saved up.
That should theoretically save me from any external shocks that happen to my budget. Although optimizing and maximizing my returns are good, I’ve grown into a place where I place security high in the list of priorities. Running out of money just doesn’t do good things for your mental health.
Avoid Running Out of Money in the First Place
Now it’s time to prevent the problem from happening in the first place. Prevention is better than the cure. Preventing yourself from running out of money and being financially secure will feel great. It’s time to pad up the emergency fund and it’s time to start building up your savings accounts.
It’s not to maximize your returns but to maximize security for your life. There’s going to come a point in your life where having more money isn’t what you’re after. But rather protecting yourself from disaster will be more important. Unfortunately, running out of money is a common phenomenon.
Even in such a rich country such as the United States. The ability to put yourself in this situation first starts with you. Are you willing to put in the work to save money from your day job? Are you willing to stop eating out for a week or two in order to set your future self up?
The choices you make today are going to make your life down the road. That is exciting and terrifying at the same time because it means that your life lies completely within your control. You are the sole person responsible for your failures and successes.
I’m currently and actively saving every bonus, 50% of my paycheck, and sacrificing eating out in order to build up my cash reserves. I thought after six years of doing so, I would be immune from being frugal but I am OK going back to my old roots if it means I create a better life for me.
Running Out Of Money? What to do Shortlist:
- Review your essentials budget
- Pay your living expenses
- Cut back on spending to stop running out of money
- Earn more income
- Don’t put yourself in the situation again
- Be honest with yourself
