Ryan P. Cleary
Float Finance 4.2: What to do When Money is Short
Sometimes, despite your best efforts, emergencies happen. In this article we will discuss what to do when you do not have enough money to pay all of your expenses in full and on time. When this happens, you need to prioritize which bills to pay first when money is short.
Float Finance is a series of accessible articles, tools, and resources designed to empower early career employees and students to navigate their financial journey.
How does it happen and what can I do?
Even with careful planning, money can run short. This is especially true if you are just getting started with a spending and saving plan or just had a major life event (started living on your own, had a child, a medical emergency, etc). Here are common reasons why many people find themselves short:
Needing to pay health or medical expenses unexpectedly due to illness or injury or income may be reduced if you miss work.
Job loss or working fewer hours than expected.
Having to replace or repair something you need to work, such as a car you drive to work.
A family member has an emergency and you give them some of the money you planned to use for paying bills.
A loved one dies suddenly, or you get divorced and lose household income.
Unexpected school costs catch you by surprise.
You have an infrequent bill and lose track of the due date
A severe storm in your area meant you had to evacuate.
You do not earn enough money to cover all your expenses.
Even if you planned carefully, you could run into situations where there is not enough money to pay all your bills in full. When your income is less than usual or you have had an unexpected expense, your regular bills and living expenses do not stop. When you can see that you are coming up short to pay your bills and living expenses, there are a few things you can do.
You can try to find ways to increase income. This can be tough to do on short notice. You can look at picking up a part time job, a gig job, monetizing a hobby, selling possessions, or asking friends/family for help.
You can try to find ways to decrease expenses. Using your budget, you can find areas to cut back and reduce expenses. This might mean changing eating habits, where you shop, putting off a planned expense, and many other changes.
You can also contact your creditors (who you owe money to) about your situation. They may give you extra time to pay or otherwise work with you. They may be able to change the due date for payments to one that is closer to when you receive income.
You can reach out for help, not only from family and friends, but also from community-based organizations and public agencies. These organizations and agencies may have programs that can help.
If you try these things but still cannot pay all your bills in full when they are due, prioritize what to pay first based on what might happen if you do not pay them.
Prioritizing Your Expenses
When you have a shortfall, you may need to make choices about which bills you will pay in full, pay partially, or pay late. Bills still need to be paid, but the order you pay them in can help you make it through the month. Examining the consequences of not paying certain bills in full and on time is the first step to prioritizing. Think about what could happen if you don’t pay.
Pay attention to consequences that:
Risk your shelter (rent or mortgage)
Impact your family’s health or ability to live independently
Prevent you from earning income
Could result in loss of your assets (car, home, valuables, etc)
In general, we suggest following this order of payments:
Pay your rent/mortgage: This ensures you have shelter.
Pay renters/mortgage insurance if required
Buy basic food and groceries: This makes sure you stay healthy and can continue to function
Pay essential utilities: These are gas, electric, and water. This again ensures you have a safe and functioning shelter. If you are experiencing financial hardship, many utility providers will work with you on a payment plan.
Pay Income Earning Expenses: These are things essential for you to continue earning income. They may include a car payment/gas/transit pass, internet/phone, and work apparel (cheaply).
Pay minimum Health Care: This may mean making a repayment plan if you have a bill and ensuring you pay your premium.
Make minimum payments on all debts
Pay non-essential utilities: Phone and Internet (if not already paid)
Build a small emergency fund: $1,000 or 1 month of expenses