This article is the first in a series of three on financial hardship. The first article addresses budgeting. Financial hardship can strike anyone. With today’s economy, some of us are facing financial crisis for the first time. Many of us may be struggling with circumstances beyond our control, such as loss of work, a medical emergency or a natural disaster. Others may be in trouble simply due to overspending.
No matter how your financial crisis began, it’s time to start the repair process. Whether you are facing overwhelming debt or just trying to gain some control over a worsening situation, you can start now to take the steps to recovery.
The first step to controlling your financial situation is to avoid unnecessary spending. If you want to get your spending under control, you’ve got to establish a budget. A budget allows you to track your flow of money. Knowing how much money is coming in and where it’s going will allow you to make smart decisions about how that money is spent, and to identify problem areas. You should keep track of your income and expenses for a minimum of two months to establish an average. Make a commitment to cut out any unnecessary purchases. After two months, you will continue to track your income and expenses so that you have an actual, month-to-month record of your spending to help keep you on track and within budget.
How should you start? Keep a record of every single expense, no matter how small. At the end of the two months, you will need to list all expenses not included in your two month listing that you know you will incur on an annual or semi-annual basis, such as property taxes, insurance payments, auto registration, income-tax preparation, summer camp for the kids, and holiday expenses. Total all your annual expenses and divide by twelve to get a monthly average to include for your budget.
Now you have to figure your monthly average income. List all income you receive each month including child support, alimony, bonus pay, retirement income, and public assistance.
Create a budget
Now that you’ve gathered two months of actual income and expense information you’re ready to make your budget. Your goal is to meet your basic living expenses, control impulse spending and start a habit of saving. All your expenses need to be broken down into categories.
Putting the budget to work
If what you are spending each month is more than what you’re bringing in, you have to make adjustments. You have to lower your expenses while still meeting your basic needs.
Always review expenses each month, looking for areas to make reductions. A budget is a tool to help you determine what you can afford and what’s not necessary.
Sometimes just making small adjustments in several different areas will put you back on track. If you keep coming up over budget every month, you may have to make drastic adjustments. Ask yourself these questions. Are you driving a newer car that can be sold and replaced with an older, used car with no car payments? Do you have an expensive gym membership that you rarely use? Magazine subscriptions you don’t really need? Maybe you can cancel the gardener and the gym membership, get your exercise mowing the lawn, and save a few extra bucks.
Making sacrifices is not new to most of us, and many of us know what goods and services we can do without. Leaving room for a few enjoyments in your budget makes a budget much easier to stick to.
Next month’s article will address prioritizing debts.
This article has been presented by MBA Tax & Bookkeeping Service, a company proud to provide Corporate/LLC filings, income tax, bookkeeping and IRS problem resolution services to truckers in all states. If you would like additional information or have questions, calls are always welcome. Contact us at 888-407-1669 or visit our website at www.mbataxhelp.com or www.mbabizservices.com.
This article is provided for informational purposes only and is not intended as legal or tax advice. Each individual business situation is different and the information contained herein is meant for general information purposes only. Specific tax and legal recommendations can only be made after an individual has consulted his or her qualified tax or legal professional.
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