Debt Management How To Establish A Realistic Budget

It is estimated that in the western world and particularily many Americans spend more than they have coming in

. To finance their deficit lifestyle, they run up huge balances on credit cards and rob Peter to pay Paul.

As you can imagine, it does not take long for practices such as these to bankrupt families. Under these conditions it is difficult for families to purchase groceries and maintain a residence. The slightest change can send these families spiraling out of control. Many even end up homeless.

The key to avoiding the above scenario is learning to live within your means which involves effective debt management and establishing a realistic budget. Establishing a budget may seem like an easy task all you really have to do is write down what you owe and subtract it from what you have coming in, right? Wrong.

The problem with simple budgeting is that many expenses are hidden and not accounted for. After you write up a simple budget, it may seem like you have plenty of money left over each month. But you could continue to fall behind due to these hidden expenses.

In order to establish a realistic budget, you need to track your expenses for a 30-day period. Purchase a small notebook and write down everything you spend including your morning coffee, lunches and dinners out. You will be surprised by how quickly small purchases add up. Once you have a clear idea of what you spend each month, you can begin to draft a budget.

Now, write down everything you spend each month and subtract it from your net income. If you spend more than 60% of your net income, you need to make some changes. The following tips will help you shave monthly expenses down to a reasonable size:

* Cut out all needless expenses. Brew coffee at home each morning to cut out daily coffee costs. Pack your lunch. Join a carpool. Do everything you can to cut costs.

* Trim your bills by eliminating things that you don't need. Lower your cable and cell phone bills by opting out of upgraded packages.

* Negotiate for lower payments on all of your bills. Contact creditors to lower interest rates and payments.

* Consolidate debt for a lower rate and payment amount. You can do this by refinancing your home or by taking out a consolidation loan. Debt management services may be able to help as well.

Remember only 60% should be going toward your monthly budget. Where does the other 40% go? It should go toward savings and investment opportunities. Plan for retirement; start a college fund for your kids. Whatever you do, invest in your future.

After you establish a budget, you need to follow it closely. A budget should more than just a few calculations made on paper, it should be a way of life. Update your budget regularly and stick to it. If you have to, set up different bank accounts for bill money and money that should be saved and have your check deposited accordingly.

by: Dan Cavalli

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