For some people, the path to a new financial outlook begins with a new job, or an inheritance, or the birth of a child. For me? It took a broken car window.
My husband and I woke up one morning this May to find that someone had broken into our car and made off with a bunch of our stuff. (Amid our anger, we found time to wonder who wants a copied Kris Kristofferson CD that badly.) After we called the police, we called the insurance company, who said they'd send someone over to fix the window. Total cost: $117.
The only thing was ... we didn't have $117. It was three days until payday, and we had (cough) $20 in the bank.
Sound familiar? I know we weren't the only ones.
Under the couch cushions
We didn't mean to be living paycheck to paycheck. We knew how to manage money, or we thought we did. But somehow we always seemed to end the month with nothing left over for emergencies. That day, though, we realized things had to change. It was either come up with a financial plan or resign ourselves to driving with a plastic bag obscuring the view on the passenger side indefinitely.
If you're in a similar spot, you don't need to wait for a folk-rock-loving thug to target your vehicle to take advantage of the things we discovered that day. When we sat down to deal with our finances, we discovered that we had more to spare than we ever realized -- hidden money, in a way, that we weren't noticing as it slipped away from us. And with a little bit of tweaking, we were able to put a lot of that money back in our pockets.
Best of all, you can learn from our pain! Here's what we did.
Step by step
1. Track your spending. We used a fancy-schmancy book with "Ledger" printed on the front, but any looseleaf notebook will do. Or if you prefer the high-tech approach, programs like Intuit's Quicken or Microsoft Money will help you keep track of expenses. Either way, make a note of every dime you spend, and when you have a couple of months of data in place, add everything up and take a look at where your money's really going. I can almost guarantee you'll be surprised.
2. Identify places to cut it. We did not think we were extravagant people -- we were newlywed journalists, after all. But we quickly saw we were spending enough on takeout alone to put a big dent in our budget. You, too, might see things you can change immediately. Are you still paying for that gym membership you meant to cancel months ago? Get rid of nonessentials; even the small ones add up. And set spending limits for things like groceries and "splurge money" (and Chinese food).
3. Stare down your bills. To many of us, bills seem immutable -- they arrive, we pay what they tell us to, rinse and repeat. But as my husband and I discovered, this isn't inevitable. After a couple of phone calls and half an hour on the Internet, we found some unexpected breathing room.
A quick call to our cell phone company put us on a family plan, saving us $30 a month. (Cingular and Verizon, among others, have options like this.) Then we attacked the cable bill. Several companies, including Comcast and Time Warner, offer bundled packages that can cut a sizable percentage off your monthly obligation. We took advantage of one of those, got rid of a couple of options, and put a decent chunk of change back in our pockets without even feeling the difference.
Finally, we spent a few minutes online consolidating our credit cards. A wedding, a honeymoon, and a cross-country move all in one 12-month span had left our balances higher than we wanted them to be. But with a little effort, we were able to shift our debt onto a card with a lower interest rate, cutting our monthly payments significantly and leaving much more left over to attack the principal. Often, a simple phone call can lower the interest rate on your credit cards -- it never hurts to ask. But if you're not happy with the results you get, check out Bankrate.com to compare interest rates and promo offers. (As always, make sure you read the fine print -- particularly regarding a maximum fee -- before you apply for anything.)
Our future's so bright ...
For us, a couple of hours of work yielded nearly $200 a month in rewards. What can you do with $2,400 more a year? For starters, open an emergency savings fund, in case, oh I don't know, your window is ever smashed. Once you have a 911 stash, you might as well make the most of your money by investing it. Two thousand bucks puts you halfway home to maxing out your IRA contribution for the year.
With the right mind-set (patient, long-term buy-and-hold), you don't have to be Warren Buffett to put your cash to work in index funds or ETFs (Vanguard Total Stock Market ETF
We only tackled the basics that day in May, but from that foundation we've made several more steps toward better financial health. We're not perfect, of course, but with every step, we're finding the next one comes that much easier.
It can pay to have some assistance in locating the leaks in your monthly budget -- before emergency (or thievery) strikes. If you'd like more help discovering the extra cash you didn't know you had, consider a free 30-day trial to Motley Fool GreenLight. Our new personal-finance newsletter promises to help you dig up at least $450 worth of "found money" every month. It's already there in your paycheck -- you just have to know where to look. GreenLight is dedicated to helping you find it.
Ellen Bowman only copies CDs she already owns. She owns no shares of companies mentioned in this article. Intuit is a former Inside Value pick, while Microsoft and Wal-Mart are current Inside Value picks. FedEx is a Stock Advisor recommendation. Bankrate is a Rule Breakers pick. Wrigley is an Income Investor recommendation. The Fool's disclosure policy busted flat in Baton Rouge, waitin' for a train.