Examine Your Expenses
Looking at your budget, it’s possible that your expenses outweigh your income. This is especially true if you have a lot of debt payments. You’ll need to either trim expenses or increase your income. Which you choose will depend a lot upon your expenses.
Now it’s time to make the hard choices. It’s time to get out those receipts now. Go through every item that you’ve purchased and decide what purchases you needed and what purchases were really luxury items.
It can be hard to be honest about your expenses, but this is the perfect time to really take hard look at your expenditures and make sure you’re being realistic about needs versus wants. Take a look at some examples of things you could probably trim:
· Fast food
· Eating out
· Salon services – hair, manicures, pedicures, etc.
· Expensive café drinks
· Magazines
· Entertainment- movies, shows, etc.
· Clothing purchases
· Travel
This doesn’t mean that you have to throw out the baby with the bathwater. You don’t have to eliminate every single luxury item. However, if you’re spending more money than you make or charging items on credit cards, it’s absolutely necessary to cut back somewhere. Why not cut back on the things you don’t really need?
For example, if you go out to eat several times a week, try to eliminate one of those trips. Or limit yourself to eating out once a week. If you get your nails done every week, try alternating weeks, or – gasp – learn to do them at home. Get a friend to help and you can do each others’ nails.
If you try to eliminate all the luxuries from your life, you may find that you end up going on a spending binge later. Instead, try to be realistic about what you can live with if you have some wiggle room in your budget.
There are a few things you need to think about when you’re trying to reconcile your income versus expenses. Here’s how to know if you need to make changes or if you’re doing okay. Most people have an area where they can improve.
If You Have to Charge It, You Can’t Afford It
Your first goal should be to stop charging on credit cards. If you can’t afford something, you should definitely try to eliminate that expense from your life. This may not happen overnight, but over time you need to get those expenses under control.
Credit cards can really be a trap. You see something you want, but you don’t have money in the bank to buy it. So you reach for that little card that has some room on it and have the instant gratification that you crave.
It feels great – until the bill arrives in the mail or your inbox. And while it seemed like a good idea at the time, credit card debt is one of the worst things that can happen to your finances. Unless you pay off your balance each month, you’re going to be paying a lot more than retail for the items you charge. And I don’t think it’s necessary to spell it out, but I will: if you are able to pay off your balance each month, you’re probably not in financial trouble!
Instead of increasing your debt, work to get beyond paying the minimum payments on your credit cards. Paying only the minimums can keep you in debt forever – and the interest will often be more than the original purchase.
The Ability to Save
Even if your expenses don’t outweigh your income, you need to look at how much you’re able to put into savings. You should be saving at least ten percent of your income and if you can’t do that, it’s time to trim expenses.
If you’re already saving that amount, you might want to increase the percentage. The more money you have to save and invest, the more secure you’ll feel now and in the future. As you’re looking at where to trim expenses, focus on putting more in savings.
Still Stretched Too Thin
It’s possible that you’re cutting all the extras and still can’t make ends meet. This is especially true if you’ve recently undergone a major life change such as a layoff or a divorce. Understandably, you may be feeling desperate at this point.
If this is happening in your life, you may have to take on a second job to increase your income. You may also want to consider finding a way to get some extra education and training to help you increase your future income. That will benefit you in many more ways than just taking care of your financial situation now.
Here are a few other ways you might be able to make your dollars stretch further or bring in more income:
· Get a roommate or rent out a room in your home
· Take a second job
· Look for financial aid for training
· Talk with family members about temporary help
· Save on groceries by using coupons and shopping sales
· Take advantage of yard sales and thrift stores for needed items
· Sell items you own that may have value
· Downsize your living situation
Think about your talents and skills and decide if you can charge for them – for example sewing and mending clothes, art, photography, handyman services, computer repair, yard work, and cleaning. You would be shocked if you knew how many people have no idea to do these things, and will pay someone else to take care of these problems for them.
It’s important to remember that, while the economy is bad right now it won’t last forever. Making sacrifices now will allow you to have a greater ability to manage your finances when things start to improve.
Next, in Part IV: Figure Out the Amount You Should be Spending
