How A Budget Can Help You To Get Out Of Debt

By: Susanna Berlatsky

Being unable to pay your bills is usually not something that happens overnight. It takes a while. Also, it usually means that handling money is not one of your strong points. Setting up a budget is one of the first things you should do when you find yourself in a situation like this.

The mind plays tricks on us. We believe that we make more money than we actually do. We conflate our gross income with our net incomes believing that $36,000 a year means that you actually have $36,000 of spendable income. 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. But you can set one up with just pen and paper. 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 expenses exceeds income, continue to find expenses that you can lower or eliminate until your budget is in balance.

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Susanna Berlatsky is webmaster and owner of www.cardcreditsettlement.com. On her site you'll find articles about how not to pay your credit card debt and other debt related topics.

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