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What to Do When Your Monthly Expenses Are More than What You Make


Quick action is necessary when your monthly expenses are more than what you make. There are ways to try to prevent this from happening in the first place, but if you're already there, you have to work hard to turn it around. You may experience some pain in the process, because you need to make some sacrifices, and it may result in a significant lifestyle change. When you're making more than your expenses, you'll be in a better position to grow your household and business income, so it's well worth enduring the pain.

List Household Expenses

Start by writing down a list of all expenses that you, your spouse and children make. Bank account statements, bills and receipts are helpful to get you started, but you also have to think of the little expenses, like buying coffee with loose change. Record the average monthly cost of each expense item. Write a "N" for need next to the expenses that are necessary for your survival, and "W" for want next to the expenses that you could live without if you had to. Total the "N" expenses, and see whether that amount exceeds your monthly household income. When calculating your household income, only add the portion of your business income that you pay yourself in the form a salary, not your gross business income. If the "N" expenses are more, then you'll need to cut expenses, which is discussed later. If you still have room, then don't do anything yet. You need to consider your business expenses.

List Business Expenses

Make the same list that you made for your household expenses, but for business expenses associated with working from home. It's a bit trickier when you're dealing with business expenses, because you think that every expense is a need, because it has the potential to make your business grow. However, focus on the minimum expenses you need to make a living from home at your current income level, such as:

  • Internet access
  • Telephone line
  • Inventory
  • Computer paper
  • Printer ink
  • Web hosting

If the total "N" business expenses exceed your gross business income, plus what you estimate for taxes, then it's time to make cuts. If you have room, and can still pay yourself a salary and pay taxes, then you have to decide whether to increase your salary to cover your household expenses, spend money on some of the "W" business expenses, or both.

Cut Household Expenses

You may need to cut your expenses in your "N" and "W" categories. Some examples of what to do about your "Ns" are:

  • Rent a cheaper apartment or downsize to a smaller home
  • Don't travel as often during the week to minimize costs for car fuel
  • Shut off lights, home office equipment and unplug appliances when you're not using them to lower your electric bill
  • Cook and freeze foods, rather than buy canned and other prepared foods from the stores which make your grocery bills high

You will need to eliminate some of your "Ws" expenses at least until your finances turn around, or you can keep some and reduce costs, by:

  • Reducing the frequency of expenses: For example, eat out once a month instead of twice a week
  • Use discounts and coupons to purchase items
  • Comparison shop and buy the cheapest whenever possible

Cut Business Expenses

The principle is the same for how you deal with business expenses. For your "N" expenses:

  • Find free or low costs methods to complete the task that generates the expense, such using the Internet
  • Switch to cheaper vendors and suppliers
  • Hire independent contractors and not employees to save costs

Completely eliminate your business "W" expenses until your household is back in proper financial order and you can afford to work on business growth.

Daphne Mallory, Esq. is the co-owner of Mallory Writing Services and has written more than 100 articles helping home based business owners and entrepreneurs start and market their business. You can learn more about her here.

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