My cousin, someone who I greatly admire, has 40 years of teaching experience. As someone who I have always looked up to, I felt honored when she turned to me for financial advice at a time when she was considering opening her own “side” business. By offering what I knew on the financial front, I might be able to make a difference by applying what I have learned in my own profession.
My cousin’s experience as an educator taught me that managing a 10-month salary can be challenging, and may require some out-of-the-box thinking for supplemental income.
We always talk about paying bills first when we receive paychecks. Not only is that a great practice, but it ensures that we are not incurring any late fees or other potential penalties. Doing so, along with making sure we are setting money aside for larger expenses or achieving major life goals, is a great start.
The next step is to create a spending plan. Writing down how much income you receive and determining -- on paper -- how that cash will be divided will help put your spending into perspective.
Pay attention to the different expenses you have. Fixed expenses are those that are typically consistent – rent, mortgage and car payments are some examples. Flexible expenses are necessities like groceries, which you have more control in determining the cost. Discretionary expenses are those that are not necessities, like going out to a movie.
Typically, when expenses are high, we need to find ways to decrease flexible and discretionary expenses. This is when we make trade-offs. This means sometimes giving up things we feel we can live without or choosing the less expensive option that still meets your needs.
The key to creating a spending plan is to be realistic and flexible. It is important to be aware and live within our means so that we can pay our expenses, but still have some money left over, as well as review your plan on a monthly basis to make adjustments when necessary.
Handsonbanking.org, a free, online financial education program with resources for youth, adults, seniors, military, and entrepreneurs, offers some great tips to consider when shopping, along with a spending plan worksheet to get started.
Throughout her career, my cousin has found different avenues to overcome some of the challenges that come with managing a 10-month salary. For example, as a teacher working full-time at a low-performing school district, she was able to qualify for student loan forgiveness, and she later spent some time as an entrepreneur to supplement her income. She shared that seeking financial advice and learning to save was a great benefit to achieve her goals.
The lesson here is: No matter what life has in store for us tomorrow, it is better to think ahead and prepare.