Make a Budget and Get Out of Debt

Are your bills overwhelming you? Do you have trouble making ends meet? Is your credit score lower than you like to admit? Are you in debt and don’t see a way out? Well, you can tackle this problem by making a budget and sticking to it. If you don’t know where your money is going, it is hard to make smart money choices and pay off your debts. Here’s how you do it.

Step 1 – List All Your Income

List all you income sources – salary, tips, child support, alimony, rental income, anything that puts money in your pocket.

Step 2 – Track All Your Expenses

This may take some work. Not all expenses come regularly. You’ll need to think back or check you records to remember those bills which do not come on a monthly basis. This process may take several months to get right. Adjust it as you go along, if you need to. If you have a bill which is not monthly, divide it by the number of months it covers. For example, property taxes are usually due every six months. Divide that bill by six. Include that amount as an expense each month. Be sure you do not spend it, just because it is there. It needs to accumulate so you will have it when it is due.

Remember to include expenses like: food, mortgage or rent, debt and loan payments, utilities (electric, gas, water), telephone, cell phone, car or truck payment, fuel for your vehicle, child care, cable, tithe, insurance premiums, and gifts.

Then list your expenses which are optional like: entertainment, eating out, clothing, vacations, etc.

If you are not sure what your expenses are in some of these categories, make an estimate. Then keep track for two or three months and make adjustments as necessary.

Don’t forget cash. Cash can disappear quickly and you’ll have no idea where it went. So write down everything you spend you cash on for a few months. Then use that figure in your budget. Write down even small spending. It adds up.

Step 3 – Compare Your Income to Your Expenses

Now you can see the big picture. You’ll see how much money you need for necessities and how much is left over for other things like entertainment, eating out, vacations, that new outfit, etc.

Step 4 – Prioritize Your Spending

Now that you see where your money goes, start prioritizing. Start with the essentials – food, mortgage/rent, utilities, medical expenses, etc. At the end of the list are the things you can live without – that second latte (or even the first) every day, eating out, etc. If your income does not meet your expenses, something has to go. Be tough. The only way to stay out of debt is to not spend more than you owe.

Step 5 – Start Paying Off Your Debts

Now that you’ve got your budget under control, take any extra money you can come up with and put it toward paying off your debts. Don’t bother with a debt consolidation loan. You will probably end up owing more than when you started and have no debt relief to show for it.

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