Money management is sort of like dieting: it's not a topic most people approach with enthusiasm.
It seems like it will involve sacrifice and pain.
And personal finance doesn't have perky spokespersons who seem vaguely familiar that come on TV and exclaim: "I lost $20,000 in credit card debt using the amazing 'Tightwad Terry's Budget' program!!!" Many times it seems we're all on our own when it comes to managing our money.
Financial health-lower debt--requires just as much discipline as losing substantial amounts of weight.
We gain weight either because of excess consumption of food or because we do not get enough exercise.
Excess consumption-reckless spending-is of course the primary cause of that unsightly buildup of debt.
When starting a dieting and exercise program, one of the first things you are advised to do is figure out your current calorie consumption, and then set goals for reducing it.
In personal finance, a budget is your tool to help you figure out where the financial flab is located.
If you enjoy working with computers a simple Excel spreadsheet can be used to help you build your budget.
Otherwise, a pad, pencil and calculator will do just fine.
First, you want to determine exactly what you spend each month, by category (mortgage, utilities, food, etc.
).
And also you want to separate your expenses by these additional categories: essential, non-essential and extraordinary items.
Essential things are those items you have to pay each month, such as your house payment.
In business, these would be called your fixed costs.
Non-essential items are those things you have a choice about.
It doesn't mean they are luxuries; it could be that cup of premium coffee you pick up each morning on the way to work.
These are discretionary expenses that you could consider cutting to meet your goal of debt reduction.
The last category, extraordinary items, is the one that trips up so many of us.
Extraordinary in this case means expenses that crop up on an irregular basis but typically occur each year, or maybe several times a year.
We may think our monthly expenses are say, $5,000, but because of these extraordinary expenses, the real monthly nut may be closer to $6,000.
This is why your detailed analysis of current expenditures can be so revealing.
You may forget the cost of repairs and maintenance on your home, or your car, over the course of the year.
We might also overlook medical expenses or veterinary bills.
It's hard to budget "trip to the emergency room for my cat" but if you see over a period of years that you have these types of bills each year, you need to include them in your budget.
If you don't, these end up being unwanted additions to your credit card balances.
In our example, you might envision your monthly expenses to be:
Essential$4,000 Non-essential$1,000 Extraordinary $???? Total:$5,000 But the reality turns out to be:
Essential$3,000 Non-essential$2,000 Extraordinary$1,000 Total: $6,000 You're course of action, then, is to cut $1,000 from your non-essential expenditures and bring your household expenses back into balance.
Budget your way out of debt and into a healthier financial status.
It seems like it will involve sacrifice and pain.
And personal finance doesn't have perky spokespersons who seem vaguely familiar that come on TV and exclaim: "I lost $20,000 in credit card debt using the amazing 'Tightwad Terry's Budget' program!!!" Many times it seems we're all on our own when it comes to managing our money.
Financial health-lower debt--requires just as much discipline as losing substantial amounts of weight.
We gain weight either because of excess consumption of food or because we do not get enough exercise.
Excess consumption-reckless spending-is of course the primary cause of that unsightly buildup of debt.
When starting a dieting and exercise program, one of the first things you are advised to do is figure out your current calorie consumption, and then set goals for reducing it.
In personal finance, a budget is your tool to help you figure out where the financial flab is located.
If you enjoy working with computers a simple Excel spreadsheet can be used to help you build your budget.
Otherwise, a pad, pencil and calculator will do just fine.
First, you want to determine exactly what you spend each month, by category (mortgage, utilities, food, etc.
).
And also you want to separate your expenses by these additional categories: essential, non-essential and extraordinary items.
Essential things are those items you have to pay each month, such as your house payment.
In business, these would be called your fixed costs.
Non-essential items are those things you have a choice about.
It doesn't mean they are luxuries; it could be that cup of premium coffee you pick up each morning on the way to work.
These are discretionary expenses that you could consider cutting to meet your goal of debt reduction.
The last category, extraordinary items, is the one that trips up so many of us.
Extraordinary in this case means expenses that crop up on an irregular basis but typically occur each year, or maybe several times a year.
We may think our monthly expenses are say, $5,000, but because of these extraordinary expenses, the real monthly nut may be closer to $6,000.
This is why your detailed analysis of current expenditures can be so revealing.
You may forget the cost of repairs and maintenance on your home, or your car, over the course of the year.
We might also overlook medical expenses or veterinary bills.
It's hard to budget "trip to the emergency room for my cat" but if you see over a period of years that you have these types of bills each year, you need to include them in your budget.
If you don't, these end up being unwanted additions to your credit card balances.
In our example, you might envision your monthly expenses to be:
Essential$4,000 Non-essential$1,000 Extraordinary $???? Total:$5,000 But the reality turns out to be:
Essential$3,000 Non-essential$2,000 Extraordinary$1,000 Total: $6,000 You're course of action, then, is to cut $1,000 from your non-essential expenditures and bring your household expenses back into balance.
Budget your way out of debt and into a healthier financial status.