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Implementing the Budgeting Process

In our last newsletter, we discussed how to prepare an expense budget. In case you did not have an opportunity to read this article, please click on the following link to read our article, Budgeting for Prosperity

Now that you have established your fixed, flexible and discretionary costs, track every dollar that you spend and categorize each dollar appropriately. Do not leave anything out. Include newspapers, coffee, parking, gum, tolls and anything you have to pay for.

Next subtract your expenses from your income. If there is money left over, then there is more to save. If your expenses are greater than your income, then it is imperative to create a spending plan that will eliminate your debt, while being able to achieve your long-term goals.

Monitor your progress for a few months. Don't take shortcuts or quit the budgeting process. This is how you take financial control of your life. You may have to adjust your spending habits or create new priorities. Stick with the program and each month you'll get better at projecting your expenses and planning your future.

As a general guideline, use the percentages listed below and see if you are living within your means.

Savings	10%
Rent/Mortgage	25%
Transportation	15%
Utilities	10%
Food	10%
Clothing	5%
Medical/Health	10%
Entertainment	5%
Debts	10%

The next step to take is to document your good and bad spending habits and consider the following recommendations to help improve your current financial position.

Develop a plan of action on how to lower your outstanding credit card debt. One example could be to pay any additional funds that you may have at the end of each month to your highest interest bearing credit card.

Stop using credit cards. This means writing to each of your creditors and closing your accounts.
Stop spending on indulgences.
Write down specifics on how you will change your bad spending practices.
Prepare a budget analysis of expenses and income.
Stick to your spending plan without exception.
Do not acquire more debt, including consolidation loans.
Set up a savings account where you pay yourself at least 5% (preferably 10%) of what you make before you pay your bills.
Save your receipts and write notes on them. You will become more aware of your spending practices.
Maintain accurate account information on income and expenses.
Look at all of your expenses and try to determine ways to increase savings and value.
Liquidate any items that are losing value. For example, old exercise equipment, a boat, or a second car that you do not need.
Use all extra income to pay off existing debts.
Carefully go over insurance policies and make sure you are not duplicating any coverage. Consider increasing your deductible for a lower monthly payment.
Save at least a dollar a day plus all pocket change everyday. A five-gallon water jug is perfect for this.
Plan major purchases and wait for a sale.
Prepare a shopping list before going to the store and do not deviate from it. Too often we impulse buy and give into our urges.
Buy a car instead of leasing one. Preferably purchase a vehicle that is at least two years old. Leasing a car can be very expensive in the long run. First of all, you do not build any equity in a leased vehicle. Also, if you go over the mileage or have any scratches or damage, you will be financially responsible if you leased the car. Do not let the lower payments fool you. Also, a brand new car loses up to 25% of its value as soon as you drive it off the lot.
Use coupons and send in for rebates whenever possible. Join a wholesale club like Sam's or Costco and save by buying in bulk.
Shop at consignment stores.
Look into getting a second job, even if it is temporary.
Do not pay for services that you or a family member can perform. Change your own oil, cut your own hair, or iron your own clothes to save money.
See if your company has a 401(k) savings program. If they do not offer one, set up your own personal IRA account at a local bank. Not only do you not pay taxes immediately on these types of savings plans, but capital gains are also taxed deferred.
Schedule your entertainment around activities that are inexpensive or free.
Include your family in your budgeting goals. Do not postpone your weekly or monthly family budgeting meetings. Make your goal of being debt free a family project.
Most importantly, do not get discouraged if you slip and stumble. Also, do not be afraid to reward yourself when periodic goals are achieved.

We, at American Debt Solutions, Inc. hope you find this article both informative and helpful and wish you the best in securing a debt free future.

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American Debt Solutions, Inc., a Non-Profit Credit Counseling Agency is a 501(c)(3) nonprofit organization providing consumers with free credit counseling and education as well as economical debt management services.