Have you experienced a financial train wreck? Or do you see one coming and want to get your finances in order before it hits (or to stop it from hitting)? Here are some budget basics for getting back on track.
1. Uncover Your Eyes…
…and take a look at your current finances. It’s the best place to start, even if you really don’t want to face it. Here’s what to look at as you assess your finances.
Do you habitually get behind in paying your bills? What is the interest on the outstanding bills? If you had to pay off all your bills, even if it meant spending all of your savings, could you?
Add up everything you owe each month in bills. Note the interest rate beside each creditor. Now take a look at the high-interest bills. Are you putting more toward those? If possible, see if you can decrease the payments on the lower-interest bills and take the extra and put it toward paying down the high-interest bills.
Remember to keep the total visible as you shuffle payments on paper.
Now take a look at your household income. Include everything, even cash gifts for birthdays and holidays if you have them. Now compare that number with your bill total. Is there a discrepancy? Are your bills greater than your income? Is your income greater or about the same?
Different than bills, expenses include such things as birthday and holiday gift expenses, entertainment, household upkeep, and decorating. These are considered “optional” to an extent, and provide some flexibility in developing your budget.
When you are listing expenses, go ahead and list them as they exist and come up with a total. Don’t make it a wish list at this point.
2. Financial Goals
Now make a list of your financial goals. Examples include “Save $1000 by January,” “Set aside $10,000 emergency fund over the next 5 years,” or “Apply more income to entertainment.” Whatever your goals, try to be as specific as possible with actual numbers.
3. Shuffle the Numbers
Now look at all the totals – bills, expenses, income – and see where the numbers are. Is there anything left for saving or giving to charity? Are the numbers greater on the expense side than on the income side?
Try a bit of number shuffling. What can you take money from to apply to another expense? And finally, if you just can’t make the numbers come out even (or aren’t able to give up what it would take to balance things out), then look into other sources of income. In other words, you may have to think about taking on more work or seeing if someone else in the family can bring home some income to cover things.