You cannot successfully manage your money unless you have a solid budget as your basis. Successfully “managing” your money means wisely spending and wisely saving your money. Below is a quick-start method to establish a budget and begin a better money-management process.
Make the Decision! – Before you will ever be successful in managing your money, you have to make a firm decision to start with a budget and stick with it, and, if it applies, obtain full agreement from your partner. You will not be successful if you have any thoughts of “fudging” in the months to come. Creating and staying on a budget takes discipline. Without discipline, you will continue to accrue debt and pay interest rate charges that you could be saving toward an exotic vacation, an early retirement or saving for your children’s college fund. So, make the decision to commit to your own success.
Money-Management Tool – You need a place to put all your financial information, so that you make yourself accountable to monitor it and stick with it. Some simply use MS Excel to list their expenses on one tab, and their income on another. You could also purchase Quicken or a similar money management tool, which more specifically tracks your financials. If you don’t already own applicable software, and don’t have the bucks to spend, there is free budget software available on the Internet.
Income – Start a running tally from the first of the month to the very last day of the month of all your net household income. Keep in mind, this is not your gross income, but your net income – after taxes and all other deductions are taken out of your paycheck(s).
Expenses – Begin another running tab for all your expenses. Again, record all of them from the first of the month to the very last day of the month. Be very specific in itemizing these expenses – electricity, gas, water, groceries, entertainment ( eating out, movies out), mortgage, specific credit cards, etc. Don’t forget to include incidentals like medical co-pays, pet care (shots, grooming), car repair/maintenance and anything else that applies.
Bottom Line – So, now you can determine the bottom line. If you have more income than expenses, then cool! Looks like you’ll have excess to apply toward other expenses or savings. If not, you’re going to need to make some drastic changes in your spending patterns.
Strategy – Your strategy is going to take several disciplines. If you are using credit cards, stop it immediately. Cut up the cards, or leave them home where you won’t be tempted to use them.
Now that you know what you spend your money on, you can see what you can stop spending your money on. Identify all expenditures that are needs as opposed to wants. Cut out as many of the wants that you can. That latte you purchase every morning on the way to work, or monthly memberships (online or otherwise) you subscribe to, or cut out the pay-per-view and look for frugal alternatives (Redbox DVDs rent for $1.00 per night + tax – check out Redbox.com to see if there is one near you).
Prioritize your outstanding debt beginning with the lowest balance to the highest. Your strategy will be to pay as much as you can over and above the payment due on the lowest balance, until it is paid off, paying only the minimum due on the remainder of your debts. The only consideration is if you have a credit card balance with exceedingly high interest rates, higher than the remaining debts. If this debt’s interest rate is much higher the other debts above it, then move this debt to the top of the list.
Babysitting Your Budget – Now, you’ll want to babysit your budget to ensure that it is properly monitored. Do you notice flux in your expenses? If so, you’ll want to note that in your budget and make the appropriate adjustments. Will you be getting a significant raise soon? If you receive a raise make sure you adjust your budget. In this case, however, allow yourself ten percent more to spend as a reward, and make sure you apply the rest toward paying off debt. After three or four months, you should be fairly adjusted and become more comfortable with following your budget. One error many who have never had a budget make is to stop monitoring their budget. Don’t make this mistake. The longer you discipline yourself to stick to it, the less likely you will be standing in line with many others out there having to file for bankruptcy.
Too Much Going Out? May Want to Consolidate or Settle
If you’re one of the unfortunate ones who find that, after putting together a budget, you have more going out than coming in; you’ll need to think about some alternatives –debt consolidation, debt settlement/negotiation, or bankruptcy. Bankruptcy, however, should be your very last alternative. Before filing for bankruptcy your initial considerations should be either debt consolidation or debt settlement/negotiation. Try this highly recommended Las Vegas Bankruptcy Lawyer.
For debt consolidation, you may either want to take out a second mortgage in the amount of the unsecured debt, or you may choose to consolidate your debt through a debt consolidation company. If you choose to take out a second mortgage, you’ll need to keep in mind that your unsecured credit card debt now becomes a secured second mortgage. If you do not pay this debt, you could lose your home.
The purpose of a debt consolidation company is to represent you in negotiating all your outstanding unsecured credit card debt into one manageable monthly payment. You’ll want to make sure to thoroughly investigate possible companies, checking with any government and watchdog organization you can find to ensure the company you choose is above board. After you make a decision as to how you will proceed, don’t forget to establish your budget, babysit and maintain it. This will keep you from future financial hardships.
Related posts:
- Put Yourself On A Budget
- What do I have to do to get out of debt?
- Budgeting – Building A Successful Budget Plan
- Debt Settlement and Your Credit
- $700 billion for banks, 31.99% interest for Ned
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