Make A Budget And Stick To It


More and more hard working people are finding themselves in debt management crises, through no fault of their own, their employment hours and income are being reduced as employers in turn struggle with revenue losses and debt management problems of their own. It is a vicious cycle that has left many Americans frantic about their financial futures and uncertain about what they can do to recover.

Just as employers are eliminating some of their debt, we as people are going to have to do the same. Obviously we cannot eliminate some of our family members to reduce our debt, so we must reduce the amount of our debt by creating a better debt management plan, or “budget” so to speak.

I know that many of you have already had to tighten your purse strings and your budgets are stretched as it is, but perhaps you haven’t tried some of these financial expert’s methods of debt reduction, or thought you had made a thorough review but may find you simply overlooked something on closer inspection. Either way it’s a worthwhile endeavor to be certain you have trimmed your budget to reduce your debt to the maximum and in the proper ways for your personal health and well being.

The best place to start is with an open and frank conversation with your family about what it is you are trying to achieve, while it is important not to frighten your children with statements like if we don’t do this we’re going to lose the house it is important to give age appropriate information in order to have everyone on board with the family budget planning and the importance of it. The process of preparing for the making of your family budget may take you several hours or even days so you may not want to involve the entire family until you have almost completed the task.

Then with pen and paper in hand, take out all your monthly bank statements, bills and credit card statements for the past 6 months separating them into piles. Once you have done this make a List A for constant monthly expenses such as mortgage payments, car, insurance, etc. any bill that is consistently the same each month (be certain to include all expenses including 401K investments, allowance, charities, AAA, magazine subscriptions, church donations, licensing fees etc. you must be sure you think of all areas you spend even $5.00) and record them onto List A if it is a fixed expense every month and something you must have not want to have, if it is a consistent but discretionary item such as magazine subscriptions place these in a separate pile for discussion later but total the yearly amount up to know how much you are spending in a years time. Then total up all your consistent monthly bills.

Once that is complete begin on a separate sheet List B with the name of the credit card and the interest rate at the top and begin again with two columns headed must and want, you then take all your credit card statements for 6 months and line by line go through each charge deciding if the charge is something the family must have such as gasoline or want to have such as DVD’s etc. include all forms of entertainment or services in your decision process. It is important to realistically decide as a family what is a must and a want and to list them separately for later discussion, after seeing what your debt to income ratio you can decide. Total the must column and multiply by 2 for a yearly total. (As a rule dining out should fall into the want category unless this is a must decision on a family or date night etc.)

Make sure you include all credit accounts in your List B accounting including gas cards, clothing and department store accounts etc. and make List B 2, 3, etc. separately for each credit card account making the must and want list and your yearly totals.
Once that is complete take all your bills such as electric, cable, telephone, cell phone and separate into individual piles these should reflect your fluctuating monthly expenses and it will be necessary to average based on consumption what you are spending yearly for each one. When you have averaged your monthly fluctuating expenses and have totaled them make a List C with the must and want column and list each expense with its yearly total next to it in the appropriate column.

Finally on a separate sheet List D put your total net income for the year being sure to include investment proceeds, real estate rental income, and side jobs etc. any and all yearly income. If your income fluctuates try to average it based upon your earnings for the past 6 months and realistic estimate for the next 6 erring on the side that it will be less than the past 6 unless certain otherwise. Then take the must totals from list A, B, and C and subtract them from your total on List D this gives you your debt to income ratio with the balance being discretionary spending.

Discretionary spending is where your want list comes in and the family meeting must occur, you do not have to show your children unless you feel its appropriate your net yearly income, but you must make it clear as to where you stand as far as how much room you have for discretionary spending and base your can fulfill want list based on that.

This is a bare bones budget which should leave you room for fun and entertainment which needs to be included in a budget in order for everyone to stick to the budget and achieve good physical and mental health as well.

Most families today are carrying an average of $13,000.00 in credit card debt with many in excess of $30,000.00 this is unacceptable for any wise money manager and can be a significant deterrent in one’s ability to achieve financial freedom from debt and grow savings, which should be an important part of your long-term financial plan. A reputable credit counselor can devise a strategic financial plan and budget for you and I strongly recommend you seek their advice if you are unable to complete this budget on your own.
No matter what the economy has in store for us you should be moving forward with a sound debt management plan and there is much to achieving that end, the most important being solid debt management and savings and retirement planning.           

National Association of Certified Credit Counselors ISO 9001:2000 Certified on Quality Management System and BSI