How Do I Get Better Credit?

To most people the thought of creating and sticking to a budget is a dispiriting one at best.  Whatever your reason for wanting to create a budget, whether it’s to get out of debt, save money, or even buy a house, you might be surprised to know that it doesn’t have to be as awfully painful as most people make it out to be. 

Learning how to budget your money is vital if you want to stay ahead of the game in this society.  The statistics are sobering: almost 43% of American families spend more than they make every year, and the average credit card debt carried by an American family is over $8,000.  The Federal Reserve also estimates that 34% of people aged 35 and under have less than $500 in the bank.  With these numbers, how is anyone creating a savings account for emergencies, or putting money towards retirement?

The reason for these sobering statistics is that people simply can’t stop buying “stuff”.  MSN Money’s Richard Jenkins said it best when he stated that people have champagne tastes on a beer budget.  If you want a life that is free from the heavy weight of massive debt then learning to budget your money and actually “save” for bigger purchases is essential.  The whole purpose of a budget is to keep you from overspending and falling into the debt hole.

So, how do you start one?

Well, creating a budget isn’t that hard to do.  Your biggest challenge will be sticking to it.

There are many different ways to set up a budget, and we’ll talk about the easiest.  The first thing you must know when you get started is how much you make every month.  Take home, not gross. 

The next thing you need to do is make a list of all your monthly expenses.  This includes your rent or mortgage, utility bills, TV/Internet, grocery bills, car note and insurance, gasoline expenditures, everything.  You also need to include credit card payments, if you’re carrying debt on them.

It helps to make two lists, one with your fixed, essential bills (like the ones we just listed) and another with your flexible expenditures, like entertainment, dining out, clothing costs, gifts, etc. 

If you don’t know how much you’re spending each month, then you’re going to need to keep track of where your money is going.  One way to do this is to have a notebook and every single time you buy something, whether it’s a check for the cable bill or a latte at the coffee shop, write it down.  If you do this faithfully at the end of the month you’ll be able to see where all your money is going.

Now, once you know how much you make, and how much you spend, you’ll be able to compare the two and see where you stand.  Are you spending more than you’re making each month?  Do you have a little left over?

Don’t be deceived.  Ask yourself if you have truly thought of every little expenditure, including those moment-of-weakness lattes or impulse-buy mascaras.  Those little “splurges” add up to much more than you might think.  If you’re paying cash for these items then they can be almost impossible to track.  Try using your ATM receipts to see how much cash you’re blowing through.

Now, after you’ve made this list, and after you’ve been totally honest with yourself about where your money is going, then we need to figure out where we can start cutting back.

But let’s stop just a moment for an important tip.  One big reason that most budgets fail is because people strap on the budget belt too tight.  You MUST leave at least a little money in your budget for having fun.  Doing things like going to the movies or going out to dinner with friends are important activities.  Do you need to do them twice a week?  No.  But leave yourself at least a little breathing room, or you’re going to fall off the wagon faster than an Alcoholics Anonymous graduate at a beer convention. 

So, how can you start cutting back your expenses so that you have more money each month?  This is a very broad question.  Obviously your flexible expenditures will have to go down.  Do you need to buy clothes every month?  Probably not.  Leave yourself room to eat out once or twice per month and cut out the rest. 

You can also work on ways to cut down on your fixed expenditures.  Perhaps you could start clipping coupons, stop drinking so much beer, shop around for cheaper car insurance, line dry your clothes, sell some of your clutter, walk instead of drive, move to a cheaper apartment, you get the picture.  There are thousands and thousands of ways you can cut down on your spending.  Just don’t forget- saving money is our goal, but leave yourself enough to have a bit of fun too.