About 50% of Americans worry about their debts, according to a recent survey, and many, I believe, would benefit from a process I’ve practiced myself. It is a simple, three- step process, Look-Budget-Check, and it requires no special financial skills but a little persistence and self-restraint. Rather than let anxiety rule your life, make a resolution today to shape up your personal finances in 2005 by putting aside one hour today to start the process:
Look: Take a careful look at where your money went. Gather your bank and credit card statements for the last three or four months and do a few simple calculations. You may be surprised to find that the "little" expenses have added up to a sum much larger than you thought. Were the "little expenses" impulsive purchases? Were they frequent enough that they consisted of a big percentage of your monthly spending? Or the impulsive purchases were not so "little" to begin with, in view of how much you bring home monthly and how much is left after paying mortgage and car loans and utilities? To look is to paint a clear financial picture for yourself.
Budget: Make a simple, realistic, monthly budget. A simple budget, although unexciting, is easier to follow than an elaborate, ambitious budget that promises to reduce your debts overnight. A piece of paper and a pencil make good tools for budgeting, and you can simply stick your budget on your fridge door as a reminder. If you’re computer savvy, you can use a budgeting software that you like. Our Monechron has an easy budgeting feature that you can modify to suit your needs. It also has an automatic expense tracking feature, which compares your budget with your expenses and tells you where your money went and the amount you spent in individual categories. A budget is a desirable course of action you lay out for yourself. Download Monechron
Check: Check your expenses against your budget and modify your spending accordingly. This is the most important step in the process because it requires putting words into action. To follow your budget—if you’ve tried it before you probably already know this— requires not only patience and persistence but also a little self-restraint. By trying to stay within your budget, over time you will develop a little voice in you that says, before you impulsively reach for the wallet, "Have you budgeted for it this month?" That’s when you will be seeing your debts dwindle and feeling your heart grow lighter and merrier.
Next year Christmas and New Year's Day will come around and you can be sure you won't be bogged down by mounting debts again. It is a good feeling.