The importance of having a budget cannot be over emphasized. The basic fact is that people who have a budget are in better shape to manage their finances than people who don’t. Sit down with your family and prepare a budget and have everyone stick to it. After all, the path to financial freedom begins with creating an accurate budget.
Track your expenses
Track all your expenses for a period of about one month so you can analyze your spending patterns. Gather all the receipts and save them by category such as grocery, shopping and entertainment.
Account for all your expenses
Determine where the money went. Use the receipts you have collected to calculate your expenses. Make a comparison between your income and the expenses to determine if you are positive or the negative at the end of the month.
Eliminate all unnecessary expenditures
Eliminate all unnecessary items from the family budget. Though some decisions may be difficult such getting rid of cable, internet and cell phone charges, you will be left with more money that you could either save or use to pay off your debts. Look for opportunities that can help you to save money such as using coupons to reduce your grocery budget. You will see in the long run that your hard sacrifices will pay off.
Setting aside an emergency fund
You could use your emergency fund as a source of income while you are settling your debts. Many financial advisors suggest that you set aside around $1,000. You could also supplement your income by selling off old items you no longer need or use.
Analyze your debts
List all your debts on a piece of paper from the smallest to the largest along with their minimum payments. This will enable you to know your total debt so you can come up with strategies for clearing them.
List all the necessary expenses
Make a list of all your expenses such as groceries, bills, entertainment, transportation and other things you cannot live without. Include the minimum payments on your credit cards. Get some envelopes and label them groceries, transportation, credit card bills, entertainment and so forth. Put the amount of cash you have budgeted for each category in the appropriate envelope. This can stop you from overspending. Use the extra money you have at the end of each month as a cushion or to help pay debts.
Determine your disposable income
Subtract the necessary expenses from your income to determine your disposable income. This will help you to know how much you are left with to finally pay off your debt.
Pay down the credit card debts
First, pay off the credit card with the smallest balance using your disposable income. You should be able to use that income to make more than your minimum monthly payment to pay off your debt faster. Once you have paid off that card, take the next one and pay it off. This can give you momentum and motivation to pay off those cards with the larger balances. Alternately, some financial experts suggest that you start paying off the credit card with the highest interest rate to prevent the interest from accumulating.
Review your budget monthly
Look at your budget frequently to make sure that you are sticking to it. Review the expenses to make sure you are not overspending and if it is possible, get a part time job to supplement your income.