When Expenses Exceed Income

by Gary Foreman

DIY Landscaping for Less photo

Do you have more money going out each month than coming in? Use these strategies for covering the monthly nut when your expenses exceed your income.

I frequently get questions from readers wanting to know what steps they should take when expenses exceed their income. Today we’ll take an idea from one field and apply it to another to explore this topic.

Covering Your Monthly Nut

There’s a concept that successful small business people know. You need to focus on covering monthly expenses before you begin to pay yourself. In some circles, it’s known as covering your monthly nut.

It’s a key issue. Before you open your doors for business on the first of each month, you know roughly how much you’ll be spending on rent, utilities, insurance, wages, and licenses. You’ll have those expenses even if your sales are zero for the month.

Your first monthly goal is to earn enough to cover monthly expenses. After that, you can worry about paying suppliers and still later about paying yourself.

What Expenses Make Up Your Monthly Nut?

The same concept applies to the average person. You have a monthly nut, too. There are a certain number of expenses that occur each month, just like clockwork. Regardless of your activities that month, you’ll face those bills. For most families, the monthly nut includes rent/mortgage, utilities (electric, water, phones), a car payment, and insurance.

Many of us have added other things to that monthly nut, like Missy’s ballet, Junior’s kung fu lessons, Mom’s yoga class at the gym, and Dad’s monthly golf game.

Then there’s the minimum payment on the credit card accounts. And, the 26 months of boat payments are still due. All those expenses pretty much happen automatically.

Calculate Your Monthly Nut

Ever wonder where your money goes?

Take a few minutes now and list the commitments on a piece of paper. Total your monthly nut. It’s not uncommon for families to have $3,000 to $4,000 or more per month already spent before the month starts.

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Ways To Reduce the Monthly Nut When Expenses Exceed Income

OK, so now that everyone’s depressed, what’s the advantage of knowing about a monthly nut? What can we do differently?

What If?

The first exercise is a “what if” game. For instance, what if I lost my job and had to live on unemployment compensation? After covering monthly expenses, would I still have enough left over to feed myself? Or, what if my company went on a 30-hour workweek? Create your own variations. (Are you prepared to cover unexpected financial what-ifs? See Easy Ways to Build an Emergency Fund on a Tight Budget.)

Is That Still True?

The next exercise asks the question, “Is that still true?” Circumstances change. Sometimes the product or service that we needed yesterday is not necessary now. For instance, there was a trend to drop the home landline as more people got cell phones. In this game, you look at each item in your monthly nut and ask yourself if you still need it.

Have My Needs Changed?

A third question for this game is, “Have my needs changed?” We still pay for basic cable but determined we weren’t viewing most of the channels within the more expensive tier we originally subscribed to. Dropping that tier saves a few dollars each month. Or carrying collision insurance on an old car might be a mistake. Look at each monthly nut item and see if you would buy a different package today. If so, talk to the supplier about changing it.

Has the Competition Changed?

The final question is, “Has the competition changed?” I may still need the product or service, but competition could mean that I’d save money by moving my business to another company. Insurance and some utilities are prime examples. (You can compare auto insurance rates with this tool.)

Remember that any savings will drop your nut every month. This is not a one-time saving. Your effort will be repaid every month.

Can We Really Afford That?

There’s one last tool that we can use because we understand the monthly nut. We’ve all seen it. The salesperson says, “It’s only so much per month.” And, the payment, taken alone, doesn’t seem big compared to your income. But a more accurate evaluation would be to think of that amount added to your existing nut. You’ll have a much better perspective of the payment. And, probably be more resistant to it.

Evaluating your monthly nut is important today. Many families are running into trouble because their expenses exceed their income. They have committed to more than their income can support. Reducing monthly expenses before trouble occurs is the best way to avoid trouble later.

Reviewed October 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.

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