Living on a Budget, Saving Money/Living on a thin thread

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Question
QUESTION: Hi,

My husband's business has taken a turn for the worse in the last week. We are struggling to pay our rent and bills. It's bad enough that we cannot afford to pay salaries to our staff this month. Looking at it long term, we may have problems generating a large income as we have been able to.

We have a rent, 2 cars on a hire purchase loan, utilities and kids education. Not to mention dog food for 7 animals and 2 children. The current rent is triple of what we had paid for in the last year. All in all, our expenses total to about USD 6,000 per month whereas our foreseeable income may be reduced to half of that. We have lost our savings of USD 35,000 due to an investment gone south. We also have a debt of USD 40,000 to pay off to creditors.   

Based on the situation, I feel we should tighten the belt by rehoming the dogs, moving to a smaller home with a cheaper rent and selling off one of the cars as we do not exactly need 2 vehicles at the moment. Garden space is limited where I am and having one comes with a hefty price.

Are my thoughts correct or should we just grit our teeth and pinch the pocket elsewhere? My husband feels that we would be losing the deposit on our tenancy and also the investment in our current place with our own fixtures and fittings installed. We would have to come up with additional deposits for a new place, albeit equivalent to a month's rental at the current home.

Looking forward to a fresh perspective as a troubled mind does not tend to be objective when it comes to decision making.

Kindest regards,
J

ANSWER: Good Afternoon J,

Thank you for your question.  

I do think that if you are absolutely certain that your business opportunity (current or potential) is entirely without hope, there are strategies for downsizing and reconsidering your priorities.

However I read in your statement that the business took a turn for the worst this **last week**.  You may not be comfortable sharing a general idea of what issues you are facing, but some info might help me understand where your fears are coming from and/or how fresh this change in events may be.  

I guess I wonder if there are strategies that can be made within the business or within business opportunity on the horizon, that could couple strategies in home expenses.

As an accountant, and as an entrepreneur's wife that went through $100,000+ losses two years ago, up to some degree of profits this year, I understand the fears and changes that business owners face.

And I see that you are in a different country and there may be limitations or potential expansions where you are in making changes.  So, it is difficult for me to answer, without truly understanding how your income potential could play out?

Just some thoughts, as I would like to consider your answer holistically...

Thank you,
Meghan

---------- FOLLOW-UP ----------

QUESTION: Hi Meghan,

Our business deals with portfolio management for clients and we have invested in a large bulk of most client portfolios into a 'safe' fund that is now going into trouble. ( Filing for receivership ) We stand to lose close to a few million dollars of our book. It would not be so bad if we would still be able to obtain the initial investment for each client but I don't think that is going to happen. I think many of our clients will walk away from this loss and perhaps even sue us for 'negligence' in someway.

The business is considered and offshore entity and therefore not entitled to obtaining loans nor assets in its name. We therefore operate out of this country due to lower living costs and jurisdiction benefits.

I have seen that most new business is drying up due to the general condition of markets performance globally and new monies injected into investments are limited. Our small pool of possible investors in funds/bonds/stock options are now reduced as most people prefer physical proof of investments these days i.e. property and rental income.
Our office is based out of our home to reduce operating costs.

The home we are in admittedly was taken on as initially we had recurring income coming in from commissions and performance bonuses. That source has now dried up or is drying up. I think by reducing our home expenses by 2/3's may help us survive this as we no longer have any fallback options. That would give us some breathing space and allow us to channel the surplus funds into the business?

I hope that this serves as better insight into our predicament? Your time is much appreciated.

J

Answer
Good Afternoon J,

Given the information you have provided, it appears that there may not be strategic business changes to buffer losses, which is what I was wanting to find out.

There are many options that you have.  Suggestions that I might make would be:

*) Top suggestion is refraining from calling your new plan a "Budget" but rather a "Spending Plan".  Keeps you in control as opposed to being controlled...
1) Organize what are your "must needs", "not sures" and "definitely discretionary" monthly outflows.
2) Even if a must need is more money than you might be able to afford, keep it in must needs for now.
3) For your "not sures", rate them based on priority of need as well as their contribution to your overall personal happiness and well-being.  It may be that gardening or keeping your dogs is a little more a want than a need, however if it keeps your personal wellbeing higher than it would be something to consider keeping or adjusting down somehow in order to keep it in your life.
4) From discretionary, pick one or two reasonable items each, perhaps one as a couple and one each as individuals (whatever you want), to keep.  You might need to downsize how much you spent on these items, but it can be important to keep at least something in your life that feels frivolous, but allows your mind some sense of freedom.
5) After you have come to what are the numbers of those current "must needs", those chosen "not sures" and a few "definitely discretionary" items, take a look at what the totals are versus what you reasonably think will be coming in, in say the next six months.  It may be difficult to determine but all one can do it give their best estimate.
6) Consider what are your emotional attachments to your current living situation.  If choosing to stay in the current place because of personally installed fixtures, can these be taken with you?  If not, is it worth staying in one place versus moving to another, in order manage your financial needs?  And losing a deposit in one place versus savings two or three times the amount in rent over several months might be worth the change.  Or, it may be that there are other changes that can be made to circumvent needing to move.  Without knowing how much your income versus your expenses will be, and how much a rent difference in amount would be, it's hard to give precise guidance on this.
7) If you can and may not already have, maintain a few different accounts to which you can divert money for certain expenses.  It can be helpful to have an account for say, Food/Household, and one for Rent/Utilities, and one for Discretionary, etc.  Therefore it is easier to maintain spending by putting into these on a weekly basis and keeping different balances.  
8) Perhaps on an Excel spreadsheet or on paper, calculate what your chosen items are and the ratio by percentage that they are to your overall income each month.  I know that as a small business, it may be difficult to know what is coming in exactly.  So, I like to project out income anywhere from 6-12 months and then divide that amount by weeks.  And then take the ratio by percentage of each item and divvy up those amounts into the particular accounts.  You can also keep track of what you put in each week and then if totally needed, you can transfer some amount from a discretionary fund to a must need if, say at the end of the month, you fall short of what you need.  It just keeps things more organized.  (Ex, if rent is 20% of your overall income for the month (and remember that a month is approximately 4.3 weeks when multiplying or dividing)... you would then take your six month income projection, divide by 26, multipy by 20% and then that amount is what you would put into your mortgage account each week.)
9) On a different note, and something that you may have already done, you might want to take a look at your creditors' balances and if you are being charged interest, those amounts and whether your are accruing interest on a daily or monthly basis.  By organizing these items, you can save thousands of dollars of the course of a year.  There are different ways of doing this.
10) At some point, it can also be very helpful to envision where you want to be in six months, seemingly realisic or not.  And also stating to yourself hopeful and positive mantras, that might be something like, "This financial circumstance is temporary.  Things are scary right now, but I know that this will strengthen me and my family.  I know that this is not a reflection of who I am or what I or my family is capable of.  We are already taking steps to managing this and all of the support and care that we need is here for us always."

**I hope that this helps a bit.  I can't really give specific guidance on what to cut or leave in, because it is complex.  But perhaps the above can give some guidance on considering what you do want to keep in your life right now, and one way to organize how to make it all happen.

Peace to you through this time.  
-Meghan  

Living on a Budget, Saving Money

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Meghan Cross

Expertise

I can answer questions related to financial management as it related to everything but specific-financial investments/trading. I also answer questions or help guide people to answering my questions to them, about how to explore their relationships with money.

Experience

I coach individuals in exploring their relationships with money and in reorganizing their financials to include income, debt, and their personal spending and savings plans. For eighteen years, as an accountant, I have worked with small and mid-sized business owners in their accounting and budget management processes.

Organizations
Center for Financial Social Work American Institute of Professional Bookkeepers

Education/Credentials
Certified Financial Social Work Educator/Coach Certified Bookkeeper Certified QuickBooks ProAdvisor

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