The first step to avoiding the troubles of financial debt is to create and maintain a budget. It’s not as intimidating as it sounds, don’t worry!
First,create a list of all your monthly income and also a list of your monthly expenses. When determining income, list all sources, including alimony, child support, side jobs, etc. In calculating expenses, be sure to include housing, food, transportation, utilities, entertainment, etc. To gain an accurate reflection of actual expenses it is a good idea to collect all your receipts for one full month. That means every penny you spend you get a receipt for, even if its just a coffee. At the end of the month sit down and add all your receipts up, and remember to categorize the receipts into your main expense categories ( housing, utilities, food, transportation, entertainment, etc. ). Check to make sure that your income covers all your expenses, this means that for one full month you will not use any credit cards! GASP! It will be ok.. Don’t Panic!!! If your income covers all of your expenses, then you have nothing to fret about. If it doesn’t….. then you have 2 options:
2) SPEND LESS
The first option may take some time, so in the meantime, adjust expenses. If it is a small discrepancy, it may mean reducing some minor expenses like entertainment or cell phone plan. If the deficit is larger, you may need to downsize your vehicle or living arrangements. Once you collect your receipts for a month you will be in totally shock about how much money you spend on completely useless stuff.. The world is full of stuff and most of us contribute to this growing pile of stuff on a daily basis. A good way to reduce expenses is to STOP BUYING STUFF YOU DON’T NEED !
A good way to curb the urge to buy is to take out cash.. put “X” amount of dollars into separate envelopes that are appropriately marked with all the major expense categories. Then you need to stay within that cash envelope for 30 days. So if your rent or mortgage is $1000.00, you would put $1000.00 in the housing envelope. You cannot borrow from envelopes and once you are out of money in that envelope, then that is it for that category. Living like this for a full 30 days is extremely painful, BUT, it will make you very choosy about the things you buy, and you will truly come to the understanding of the meaning “Penny Pinching “. At the end of this 30 day period, take all your left over money ( if you have any ) and put that into a savings account.. Do this for a year and you will be amazed at how much money you can actually save and after a few months, you will have less STUFF and less debt.
Most people set a budget after they are drowning in debt or they need to save for something they need and or want. Don’t wait till you get to this point, start your budget early so that you will always have a financial cushion that will allow you the freedom to make decisions based on choice not financial situation.
Not only does a budget help you manage your money, but it allows you to see where your money goes and what your spending habits are. As your career and lifestyle changes your budget will too, but it is always best to live slightly below your means, so that you are prepared for whatever unexpected twists and turns your life takes. Afterall, life is a long road that can take you anywhere..a budget will allow you the freedom to enjoy the journey.