The more you know the better off you will be

When you want to become debt free, you have to be able to understand all aspects of your financial situation in order to get out of debt and stay out of debt. The more you understand about your finances, the better your plan will be for becoming debt free. To know all there is to know about your debt, you will have to make a list of your personal debts. This list must be detailed and contain all of your debts. You have to be able to understand where your money comes from and where it goes.

Some people who have been successful at becoming debt free or in little debt will tell you that getting all of your information about your debt may take a month or two. The faster you get this information the better you will be obviously. Unless, you run a business, your income most likely comes as a pay check or pension check. You may not have any control over the amount of income or the deductions from it, except for general ways like 401k payments and tax exemptions. But, you will find that your pay check stub carries valuable info you will need.

Your expenses most likely are not as simple to account for as you may have thought. Most people can’t even come up with an explanation for how they actually spend up to a quarter of their net income. Start with your checkbook. If you don’t keep a detailed ledger, this is the first thing you will have to do to account for your money. Checkbook ledgers are a great way to organize where and when your money comes in and gets spent. Look at your credit card statements to find out exact information about your payments, purchases and interest rates.

Once you have all of this information in front of you, create your list of expenses. Be as specific as you can when creating your list of expenses. If you are too general, you will not be helping your situation. Don’t forget to add quarterly bills to your list/. Many people who create expense lists to form budgets will only remember to add monthly bills - do not forget the ones you pay on a quarterly basis. Some people pay their water bill son a quarterly basis as well as insurance – so don’t forget. If you do have quarterly bills, just break the amounts into monthly costs. If your water bill is $100 each 4 months, write on your list as a $25 monthly expense.

After you have your detailed list completed, compare it to your actual take home income. Now, if you have accounted for all your net income, the bills are accounted for and you are still in debt, you have forgotten something. This is where the “it may take some time” part comes in. Start keeping detailed records by category for a few weeks or months to figure out exactly where your money is going. If you pay for something with cash, save the receipts so you can track all expenses. I specifically remember when I was trying to account for money once, that I took a close look at my receipts and checkcard entries in my checkbook and realized that I was spending over $60 a month a Starbucks alone! That was for coffee, not even a meal was involved. You will many times shock yourself when going through this process, but it is an educational one that will change your spending habits for sure if you are trying to get out of debt.

If your list of expenses adds up to more than your net income, it will instantly become obvious to you that you are getting further into debt and you will have to start cutting corners to create a better balance at once. Even if you are breaking even without saving any money, you are living on borrowed time financially speaking. You are biding your time and will not be prepared financially if an emergency should happen causing you to need emergency money. A budget adjustment can help you reduce some expenses and build some personal savings.

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