How A Budget Can Help You To Get Out Of Debt

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Finding yourself knee deep in debt and unable to pay your bills is usually a situation that that did not happen overnight. And, typically, it indicates an inability to handle money in a responsible manner. When you find yourself in a situation like this, one of the first things that you should do is to set up a budget for yourself. Setting up a budget will not only help you to extricate yourself from your debt situation, it will also teach you how to manage money.

The mind plays tricks on us. We believe that we make more money than we actually do. If our salary is $36,000 a year or $3,000 a month, we don't actually get to spend $3,000 a month. After federal and state taxes, FICA deductions, Health care deductions, and a slew of other miscellaneous deductions - we may have less than $2000 a month of spendable income.

Conversely, we spend more money than we think we do. The quarters for parking meters, the occasional night out, the various city licenses and such - are insignificant amounts on their own, but all add up to balloon our monthly spending. A real benefit of setting up a monthly income and expense budget is that if forces us to write down everything so we avoid overestimating income and underestimating expenses.

A monthly income and expense budget will help you to track where your money is going and allow you to consciously reduce extraneous expenses that you can do without. It will help to reign in your spending and get it under control.

An income and expense budget does not have to be over elaborate, in fact the simpler the better. You can set one up with pen and paper, with a simple spreadsheet, or you can purchase a low cost budget planning software. The important thing is that whatever method you use, it allows for reconciling your income and expenses at each month end.

Your budget plan basically consists of two portions. The monthly income part consists of all anticipated income that you expect to receive in that particular month. This includes salary, dividend investment income, alimony income payments, Social Security, and so on. List the source of each anticipated income followed by the dollar amount.

The expense part of the budget plan consists of all expected expenses that you expect to incur for that particular month. This includes things such as monthly rent or mortgage, food and restaurant bills, FICA, wage garnishments, alimony payments, clothing, etc. Don't worry if you can't come up with them all immediately, you can always add to the list.

Now you put the budget plan through a trial run. Try it out for a month making adjustments to it as you go. If you discover an expense that you left out, add it in. Do the same for any extra income which you omitted. By the end of the first month, you should have a monthly budget plan that pretty much reflects your actual income and spending habits.

The key is not to stop here, but to use the plan month after month. At the end of each month, subtract your expense for the month from that month's income. If your income exceeds expenses, continue to find expenses that you can lower or eliminate until your budget is in balance.

Article Source: http://depositarticles.com/

Susanna Berlatsky is webmaster and owner of the cardcreditdebtsettlement.com website. Please visit her site fo find credit related articles on lowest credit card rates, college credit cards policies, as well as other debt related topics.

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