|
Creating a Budget: Tips and Tricks |
By Art Gib
 Before credit was introduced into our economic system people bought everything with cash. If they didn't have cash for what they needed than they either went without or took out a loan from a lending institution or neighbor. Today things are different. Most people have at least one credit card, and if they want to take out a loan it is absolutely vital that they have a good credit score.
Unfortunately, because of this reliance on this different form of funding, many people tend to spend above their means which causes them to drop into debt. That doesn't meant they have to stay in debt, however. By creating a budget for themselves and their family they can curb any negative spending habits and utilize their income to pay off their debts as quickly as possible.
The first step to take when creating a budget is to figure out your income and expenses. Any money coming in monthly through a job, a rental property, child support, investments, etc needs to be calculated as income. Add all forms of monthly cash flow together and you
get your monthly income amount.
When calculating your expenses you will want to break it down into two sections. The first section is the expenses that do not change monthly. These are considered fixed expenses. This may include the mortgage, utilities, car payments, and insurance. The second section is a list of variable expenses, such as food, gas, entertainment, and dining out. This section will be important when it comes time to adjust your expenses because these, of course, are adjustable.
After you determine your totals, subtract the expenses from the income to calculate your monthly cash flow. If the number is positive each month you are in a good place to start paying off some debt. If the number is negative you will want to start adjusting your variable expenses until you can make the two numbers even. You want to make sure you're not going further into debt each month.
Any extra cash flow you have can be put toward paying down some of that debt. Some people put all the extra cash toward one debt until that debt is paid and then move onto the next one. This is a great way to reduce debt quickly. Others choose debt consolidation to give themselves one or two monthly payments, and then put the extra money toward that. This method can often save you money because it can get rid of high interest rates that were being paid on a loan prior to the consolidation.
It can be difficult to create a budget, but it is necessary to take control of your financial situation. Many people don't realize how much money they are spending monthly until they sit down and calculate the numbers. It can be an eye opening experience, but it is worth it when you realize that you can control your financial situation.
DebtGuru.com (http://www.debtguru.com/debt-consolidation.htm) offers information on debt consolidation. Art Gib is a freelance writer.
|
