Creating A Budget to Eliminate Debt

So, you're in debt. What is the first thing you should do? You are in a hole that is continuously getting deeper and deeper. The bill collectors are calling and the unpaid bills are stacking up. You need to sit down, take a deep breath and regain control. If you don't know exactly where your money goes every month, then find out. Make a commitment to keep track of your funds. In a memo pad, keep accurate account of every dollar you spend for a month. Make sure you write down every price of every item you purchase. Record every newspaper, magazine and cup of coffee you indulge in. At the end of the month, sit down and sort all of your expenses into specific categories. When you finish, add up all your columns and you will be able to see exactly where the majority of your money ends up.

Now that you know how your money is spent every month, you can start by organizing your expenses and getting creative with ways to reduce your spending. Look at every step individually and be accurate, so that you get a very clear picture of your situation. In this manner, you can create a solution to your problem.

Step One: Your Income
The first thing you need to do is look at your monthly income. How much do you bring home after taxes? From that you must subtract all the NECESSARY expenses. This includes the expenses for your transportation to and from work. If you have child care expenses, they should be included as well. All the expenses that you must pay to be able to work should be factored in here.

Step Two: Your Household Monthly Expenses
In this category one should include all the expenses that are necessary to run your household. These expenses include the rent or mortgage, the electric bill, the phone bill, the internet bill, the cable bill, the car payment, the car insurance and the grocery bill (include pet foods and toiletries). Those of you that pay child support, support your elderly parents, and/or tithe should include those payments here.

Step Three: Your Leisurely Activites
This is where you list memberships to your gym, movie rentals, visits to the movies, book purchases, comic books, pedicures, manicures and hairstylist/barber shop visits. Anything that you do or buy that falls under entertainment goes here. That includes the Friday night bar tab, the admission to a night club or the baseball tickets. EVERYTHING that is a form of entertainment.

Now that you have a clear picture of the monthly damage, you can start thinking of ways to cut expenses. Can't think of any? Don't worry, I'm here to help.

Your Income
You know how much you make now. Can you increase your income? In most cases, the answer is yes. Can you ask your boss for overtime? Can you work a second job? Can you ask for a raise? Can you look for another job with higher salary? There are other opportunities like home based businesses, online income opportunities and eBay. Look at all these possibilities and see if there is something you can do to create more income.

Now that you know exactly what your income is and have subtracted all the necessary expenses, you know what it will take to get out of the hole. If you pay child care, you may want to look into a less expensive alternative. Make sure you feel good about the day care provider. Do not trade safety and/or security to save some money. Just check out the alternatives to see if you have made the best choice. In the area of transportation, look at other options. Can you carpal? Can you find a less expensive choice? For example, can you take the train to work instead of driving in or vice versa? Can you walk, take public transportation or maybe even move closer to your job? Look at ALL the alternatives. Think outside the box.

Your Household Monthly Expenses
Your monthly expenses are next. If you rent and you don't have transitional issues, you may want to look for more affordable housing closer to your jobs (always check out the school district if you have children). If you own your home, you can always look into refinancing. Refinancing may be a great idea because you can use the equity on your home to pay off your debt and you now have a tax write off. Interest rates are low now. If this is an option, start researching a company right away. You may be able to get rid of your debt, get a lower interest rate on your mortgage, get a tax write off and start a nest egg. All this just by refinancing. I have already discussed the grocery bill,phone, cable and internet providers on a previous post. Finding a less expensive car insurance premium is now easier than ever. Take a defensive driving course to decrease your insurance payments. Make sure you discuss all the different ways you can reduce your car insurance payment. Your broker should be able to answer your questions.

Your Leisurely Activities
You can cut back on some of these until you pay off your debt. Do not stop all your entertainment, unless you can honestly deal with it. You may be so miserable that you'll sink back to your old ways. Be creative with ways to cut the spending. For example, if you like to rent movies then look into Netflix or Blockbuster programs that deliver your movies to your mailbox. They eliminate exorbitant late charge fees and gas consumption to and from the rental store. If you like to go to the movies, then go to the matinee. It is always cheaper. You can buy books for half the cost on sites like www.half.com and www.amazon.com

See, there are many ways that you can cut your costs. Try some of these suggestions and see how it works. You'll be surprised at the money you'll save and how quickly you'll climb out of that HOLE!