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This is a guest article by Joe Johnson
Do not allow the economy to determine the level of your financial wealth. Design a budget that meets your needs and take control of your finances.
There is no need to succumb to the world’s unstable economic times. You wouldn’t go on a traveling vacation by just showing up at the airport. You would create a plan that includes the destination, lodging, and places you want to visit. This is the same thing with your finances. If you choose to ignore the ratio of your income to your expenses, you will drown in the waters of debt and allow the economy to determine your financial status.
Take direction and create a monthly budget. You need to stop feeling sorry for yourself in thinking that you are just living paycheck to paycheck. Stop creating debt with credit cards, and begin using a debit card or personal checks so your payments are done with the cash you have. Take control of your finances by following these tips to create a successful budget.
Know your income This is simple. We all know how much money we make each month. Gather your pay stubs and review your deductions to ensure that items being deducted are correct. If you are not saving for retirement, now would be the time to do so. Also take advantage of flexible spending accounts that are tax free if you have expected child care or medical costs.
Know your expenses
For one month, save receipts from everything you spend your money on. This will help you identify where you are spending your money and what you are spending your money on. It’s amazing how fast small purchases here and there can add up to large amounts of expenditures. Also keep receipts or statements for all your routine bills, such as cable, electricity, water, gas, car insurance, mortgage, or house rent. In addition, collect all your credit card statements for the month. You will also want to reorder personal checks and add this expense to your list, since you will be moving away from credit card dependence.
Analyze your expenses
After a month of tracking all your expenses, divide it into categories, such as groceries, utilities, household items, clothing, tuition, entertainment, eating out, loans, and credit cards. Add up the totals for each category – this is where your money is going. Divide the expenses into what is necessary and what is not necessary, like the tenth pair of shoes to add to a collection that still have price tags on them. Be honest with yourself. You know what expenses are essential, and you know which expenses you could live without or just buy on impulse.
Create your budget worksheet
Get an expense journal, a computer spreadsheet program, or just a plain notebook to begin establishing a planned budget. On the top of the sheet log your household income. Under your income you will log all your routine expenses, such as cable, Internet service, electricity, and car insurance. Before logging these expenses, review each bill to ensure that you are utilizing all the services you are paying for. For example, maybe it is not necessary at this time to have certain cable channels on your service. That could save you almost a $100 in one step. Next, list all loan and credit card bills that are routine and necessary for you to remain in good credit standing. List the credit card bills in order of the one with the highest interest percentage first, as this is the one you will work on paying off first. In addition, this is the area that you want to pay particular attention to. You need to STOP using credit cards. There is no way you can pay down debt if you keep creating debt. After your routine and necessary expenses, include estimated totals for groceries, household items, as vehicle maintenance (gas, oil, etc.). Now deduct your expenditures from your income – this is your reality. Work your plan. Use this budget as your monthly guide. Each month adjust and create another spreadsheet, referring to your original log as a guide to spending. Each month you should see additional savings. Following a budget will keep you from being affected by the economy and will put you on the path to financial freedom. Stop using credit cards. Switch to debit cards or personal checks cheap with free shipping. Credit cards only create a false sense of wealth.
This is the first part of a three-part series in surviving the economy. The second article in this three-part series will provide additional information on reducing spending.
About the Author: Residing in Minnesota, Joe Johnson has been active in online communities for over 15 years. He enjoys helping families and individuals understand the importance of personal finances, such as saving and budgeting money, by contributing articles to related online web sites.