SET A BUDGET
To many people, "budget" is an ugly word. It gives a up feeling of sacrifice, restriction, limits, and relinquishing control. If you have a problem with the word "budget," use some other term instead, such as "spending plan" or a cash flow plan. But for our discussion here, it will be called a budget.
A budget is really the opposite of restriction up control. You're taking control of your money. You're setting the priorities and deciding where you want to spend your money, instead of just letting money dribble our pockets each time you leave home. If you set and follow a budget, you'll never again ask yourself, "Where did all my money go?"
A budget is simply a list of all your expenses compared with all your sources of income. You figure out what your monthly living expenses are and then decide what to do with any money left over. If there's nothing left over, that's OK. A budget is flexible. You can make changes, increasing some items and cutting others, until you find a formula that works for you.
When budgets don't work, it's usually because they're unrealistic (you swear you'll never go to the movies or go out to dinner again) or overly restrictive (a diet that doesn't allow you to eat any of your favorite foods is sure to fail), or because people simply abandon the budget when they feel frustrated about having to deny themselves something. But remember-the main reason for setting a budget is to rein in your spending so that you can pay off your debt and improve your credit.
Your expenses fall into two categories: fixed and discretionary. Fixed expenses change, depending on yow much you choose to spend-say, on clothes or entertainment. When you write down all the places where you spend money, you might be surprised by how much money gets wasted on unimportant items that you could easily live without. With a little luck you'll find some items in your budget that you can easily cut back on without significantly changing your lifestyle.
To set an accurate budget, start by taking out your checkbook and gathering all the receipts you can find. You probably haven't saved all your receipts, so for the next two or three months, collect receipts from every purchase, even a pack of gum. When you think you have everything, fill out your chart. Eliminate the categories you don`t need, and add any others that pertain to your spending habits.
If you're computer-savvy, consider using a software program such as Microsoft Money or Quicken. They do basically the same thing as a handwritten budget chart, but the programs do some of the math for you and can help you project how your budget will change when you alter your spending patterns. You can do the same kind of analysis with a piece of paper, though. You certainly don't need a computer to keep track of a budget.
As you start to track your spending, you should sit down once a week and look at where the money is going. This will help reinforce your new behavior and get you into some good habits. After a few months, you can give up the weekly analysis and do only a monthly one.
Next, take a look at your pay stubs from the past few months. Tally up your monthly take-home income, after income taxes and other deductions are taken out of your check. If your take-home pay varies from month to a month, add up a year's worth and divide by 12 to get your of average monthly income.
Then, subtract your expenses from your income. If you have money left over, that's great news. You can immediately increase what you send to your creditors each month. But if you have a negative number, that means you're buying things you can't pay for. You're going to have some hard work ahead of you.
Get your list of needs and wants, and sit down with it and your budget. Start with the budget items marked as fixed. Some of these won`t easily change, such as your rent. But maybe you can reduce your cable television bill. Do you really need the premium package? Do you need cable at all?
Now look at the discretionary items on your budget. This is where you'll have the most opportunity to save money. Have you been spending hundreds of dollars on wants, such as new clothes or nights out at the movies? You could cut back considerably here, and probably without much effort. How about your food category? If you eat out a lot, consider brown-bagging your lunch. If you save $6 a day on lunch money, 5 days a week, for 50 weeks, you'll save $1,500 a year. Or give up a coffee habit that's costing you $1 a day. Not very exciting, maybe, but the savings will be.
Circle the items you could eliminate, or reduce, and redo the math. You should have a lot more money left over after this initial round of cutbacks. Again, don't think of this budget as a pair of handcuffs. It's a tool. It's going to empower you to get the things you really want-zero credit card balances, positive changes in your credit history, and the ability to plan for future goals without falling into financial quicksand.