Wouldn’t it be nice if you could just sit down and pay your bills every month without feeling stressed? The best way to help alleviate money-related stress is to actively take control of your personal finances.
Budgeting, paying off debt and balancing your income with your expenses will go a long way towards achieving financial peace of mind, especially if you’re stuck in a situation where you’re paying a high amount of interest on credit card debt.
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Income
Start by listing your main source of reliable income. If your base income tends to fluctuate because you get paid on an hourly basis, you are a freelancer, or you have your own business, then lean towards a conservative estimate.
Keep in mind that if your income situation is unstable, then you will have to adjust your budget accordingly. A good rule of thumb is when you have “extra” income in addition to what you planned, save it for when you earn less than expected.
If you have other income that varies such as from investments, a part-time job, or child support from an ex-spouse who has trouble making payments on time, treat that money as “extra” income and don’t count on it to pay your bills.
In order to properly balance your budget, you need to live within the means of income that you can reasonably expect to earn and not rely on big windfalls of unexpected cash. This is because they rarely come when you need them the most.
Expenses
If you don’t know where your money goes from paycheck to paycheck, the good news is that you’re not alone. The bad news is that you absolutely have to figure it out. Not knowing your own spending habits and where your money is going is almost certainly a big cause of your financial problems.
Create a spending journal and log all your purchases, no matter how small, for at least one month. Include your regular bills as well.
“The only way you’ll be able to get out of debt and stay out of debt is to change your buying habits so that you stop spending more money than you bring in.”
Once you have a record of your spending, start grouping your expenditures into logical categories such as food, gas, utilities, et cetera. If you are familiar with creating spreadsheets, they are useful for laying out the information in a nice, readable format. On the other hand, if spreadsheets aren’t your thing, pencil and notebook paper work as well.
The important thing is to get a clear visual representation of how much of your money is going to each category.
How do they compare?
Compare your income to your expenses. If your expenses are way beyond your current income and you don’t feel like you can cut your spending back enough to make up the difference, then you may need to consider using a resource like debtconsolidation.com to get help managing your debts.
If your income-to-expense ratio is too far out of balance for you to bring under control, then you might want to get advice from someone who can help you deal with your creditors.
Whether you need to seek professional help or not, if you don’t have enough income to cover what you’re spending, then you need to start cutting back. Even if you do get help from a debt counseling agency, you will still have to stick to a more frugal budget in order to make things work.
The only way you’ll be able to get out of debt and stay out of debt is to change your buying habits so that you stop spending more money than you bring in.
Two big areas of overspending
One area in which most people overspend is on food. Everyone has to eat, but how much money do you spend eating out? If you tend to eat out a lot or order take-out food frequently, including fast food, then you need to stop. Cooking at home is always cheaper. That includes making your own lunches as well.
Don’t be afraid to clip coupons and be a grocery “bargain hunter.” Yes, it does take some work, but it will lower your food costs dramatically.
Another area that tends to hit people right in the wallet is not planning for expenses that they know are coming up. For example, you know that you’re likely to spend a certain amount of money on holiday shopping every year. You may also know that you’re likely to end up owing taxes.
Include reoccurring and/or planned events in your budget so that you set aside money in advance and you are less tempted to spend impulsively at the last minute.
Other areas of caution
Obviously, it goes without saying that if you want to get out of debt, then you have to stop using your credit cards. Credit card purchases inevitably always cost you more than cash. Pay down your accounts and don’t run them back up again. However, you shouldn’t close the accounts once you pay them off unless you have to settle them.
Having available, but unused credit is good for your credit score and will save you money when you do have to borrow again.
Last, but by no means least, how many of your regular monthly bills can you cut back on? For example, do you really need both a cell phone and a landline? Is there a way you could cut some channels to save on your monthly cable bill? Does your electric company offer a way for you to split your bill evenly throughout the year so that you can plan your expenses better?
“The best way to help alleviate money-related stress is to actively take control of your personal finances.”
Look at all your monthly bills and see where you might be able to make some minor sacrifices or changes.
Separate your wants from your needs. You may want a new car, but not necessarily need one. Even when it comes to necessities like food, you may want to order pizza delivery, but you could also buy ingredients from the grocery store and make one for less money.
Think before you spend, and remember that the more you stick to your budget, the quicker you’ll regain a sense of real financial stability.
About the Author:
Tony Standing is a personal finance specialist. His passion is to help others learn to budget, get out of debt, stay out of debt, and live free of financial burdens.
CMO Contributor
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