Let's get it out right now: it is vital that you get control of your finances before your money takes control of you. The way you allow this to play out in your life is the determining factor of what is most important to you, such as where and how you live and the things you are able to accomplish. Making a budget work does not need to be stressful.
Here are the five steps to start today to get out of debt, and live financially free.
1. Begin by tracking your spending. This is the first vital step to take for taking control of your money; you will soon discover how you are realistically managing your finances right now. Do you know where your money comes from and specifically how it is spent? Most know the first but not the second. After a couple of weeks of diligent tracking, you will be quite surprised to discover that how you thought you were spending your money is a bit (or vastly) different than the reality of how it is actually being spent.
Again, to discover how and where your money is going, start to track it now. The tracking system can be as simple as lined pages with columns, or a bit more sophisticated by using a software program. Either way, get the expenses systematically written down to start seeing trends. Doing this will bring out the reality of your spending as opposed to guesstimating. Armed with more specific information, you will be able to make even better informed financial and lifestyle decisions.
2. The next step to get control of your finances is to set up a budget. If you are mentally or emotionally blocked by believing you are not able to follow a budget, then call it a spending plan instead. The bottom line is you need to spend less than you make to be able to pay off your debts, save for future needs, and help others when you are able.
Write down how much you need to spend on each category such as tithe, food, housing, clothing, car, entertainment, etc. This is the part where you tell your money what to do. Oh, also include savings in there as well.
Now, after adding up all of your proposed expenses, are they less than or equal to your take home pay? This is the time where your real need for cutting some expenses to be able to live within your means. Be honest and realistic with this process and you will succeed. Creating a personal budget that matches reality enables you to plan ahead for those large purchases, knowing how much you need to save each month.
And do not worry, your financial needs and perceptions are going to change often during the first few months of this process, so simply review your spending plan regularly and make realistic adjustments accordingly.
3. With your tracking system and budget in place, you can now establish a regular savings plan. You will get richer not because of tax breaks, but because of disciplined savings and watching it systematically grow. Unfortunately, you may not be accustomed to saving regularly as money is probably often spent as quickly as received. Get accustomed.
To start effective savings TODAY and get control of your finances, take a certain percentage of your take home pay and put it away in a bank account. Have it automatically deducted from your paycheck if necessary, but make that commitment. 10 to 15% is a worthy goal, but starting at 5% and working up might help make it doable for you.
4. Eliminate your credit cards by cutting them up. You know that you will use them if you go shopping. And by doing so, you usually will spend more. If you have not developed the discipline of paying off your credit cards when the statement comes, then it is time to stop using them.
As you remove the temptation to spend more with credit cards, you force yourself to stay living within your means, spending only the money you can realistically afford.
5. Staying with the credit card theme, ask for lower fees from your credit card company. Simply dial the phone and ask them if you would be able to negotiate a lower rate. They will usually try to accommodate as it is in their best interest to keep you paying the monthly interest payments, as opposed to either you transferring your balance elsewhere or the possibility of your account going to collections.
The five steps outlined above helps you to get control of your finances, and keep it that way, as opposed to your money keeping control of you. Once you do develop financial discipline, you will gain a lot more control and freedom over almost every aspect of your life.
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