5. Make, and stick to, a budget
Budgets are the first steps to gaining some financial order in your home. Stanley Kershman, an author, lawyer, and creator of the website www.debtonadiet.com, has a six-step plan to accomplishing just that:
1. Don't attempt to do your entire budget in one sitting. Take a few days, breaking the work down into manageable pieces.
2. Gather up all of your income information, including salaries, interest, and gifts.
3. Next, gather up all of your expense information. Do this thoroughly, even if it takes three days, a week, or a month. Make sure you're not missing anything.
4. Using a budget worksheet add up all of the totals for the income and outflow.
5. Figure out where you can do some fine-tuning, either to pay down your debt or increase your savings goals. However, above all, make sure you're making as much money as you're spending. Stay out of the red.
6. Redo the budget with the new totals, and post it around your house, lest you forget you are now living within the cozy confines of a household budget.
So you diligently track your income and every expense that you have. But how do you know if you're spending reasonable amounts of money on things like housing, debt, and groceries? Follow these parameters offered by E. Kim Dignum, a financial planner in Fort Worth, Texas, courtesy of CNNmoney.com (all figures are percentages of your gross household income):
•30 percent: Housing and debt (mortgage/rent, credit cards, auto loans, student loans, etc.)
•26 percent: Living expenses (food, clothing, utilities, transportation, medical, entertainment)
•25 percent: Taxes (federal, state, local, and property; FICA and Medicare)
•15 percent: Savings and retirement (401(k), stocks, mutual funds, college savings, etc.)
•4 percent: Insurance (life, health, disability, auto, homeowners, etc.)