How do I survive the turbulence of the economy? Why am I living paycheck to paycheck? Why is my credit card debt increasing? Is there any end in sight? These are common questions in an uncertain economy where jobs are scarce, people are being laid off or asked to take pay cuts, and prices of goods and services continue to increase. I’m here to tell you that regardless of your income level, you can get a hold of your finances and reach a level of financial security.
You would never head out on a road trip to a specific destination, with no plan. So why would you head out into this world with no financial plan? Do you often wonder where your money has gone when you look at your checkbook balance and it’s at $0 or even in the negative? Don’t shut your eyes and think the economy will turn and your finances will get better. Believe me, it will only be worse if you ignore the facts of what you are bringing home in terms of your income, and in what you are spending. All it takes is creating a simple personal budget to begin your path to financial success.
What is a personal budget?
A budget is nothing more than a money managing tool. There is no need for elaborate computer programs or professional accounting books.
All you need is a notebook or some paper and a plan. A plan to recognize what your actual take home pay is for the household, what your necessary expenses are in an average month, and where you can save money.
Don’t let the economy control you, you control it by managing your own finances by practicing these five simple guidelines to creating your own personal budget and rise above financial despair.
1. Identify your income
This is no secret. You know exactly how much you bring home each month. Take this figure and log it at the top of your budget sheet.
2. Identify all your expenses
Gather all your receipts and monthly routine bills. Gather everything, from the morning coffee each day, to the take out dinners. Recognizing where your money is going is essential in identifying necessary and unnecessary expenses.
Identify your routine bills, such as cable, electricity, water, gas, car insurance, mortgage or house rent, educational tuition, loans, and credit card payments. The main area in this list of routine expenses that needs to end is credit card expenses. Give the credit card companies a call and see if you can get lower interest rates. Then, simply stop charging. Pay by cash, debit card, or personal check only. At this time, you will want to order designer personal checks to not lose your identity and encourage you to pay for items that you can afford with no excuse to use a credit card.
3. Analyze all your expenses
Take a second look at the routine expenses. Do you really need movie channels? Those are just extra costs that you can sacrifice for a savings plan. Take a look at your car insurance premiums. Identify that you need all that coverage, or if your car is older, you may be able to just keep the minimum insurance requirements by law. This may be an additional savings benefit.
Next, look at your daily expenses. Is it necessary to buy a cup of coffee each morning and lunch each work day? You could save an average of $65 per week! Your grocery expenses and household items may fluctuate slightly each month, but in general should remain the same. These are your essential costs to maintaining a workable standard of living. Add up the totals for each category – this is where your money is going.
4. Create your personal budget
Under your noted income on your personal budget sheet, list all your routine expenses that you identified above. With these routine expenses, you will also have your loan and credit card monthly payments. Next to these expenses, log the interest rates you are paying and your current balances in the order of the highest interest rate. This will be the expenses you pay off first.
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.
5. Working your personal budget plan
You now have a budget. Utilize it each month as your guide, taking all extra monies and placing it in a savings plan so you won’t be tempted to spend it. Save that money for unexpected costs. Each month adjust and create another spreadsheet, referring to your original log as a guide to spending.
Following a budget will keep you from being negatively affected by the economy. As you have seen, it’s not how much you make, but how you choose to spend what you have. Live within your means. Stop using credit cards. Switch to debit cards or cheap online checks. 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.
Author Bio: 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.