Dollars & Sense
Dealing with Debt
This article is the first in a series of three on Dealing with Debt. Our first article addresses Budgeting.
Financial hardship can strike anyone. Many of us may be struggling with circumstances beyond our control, such as, loss of work, medical emergency or natural disaster. Some of us may be in trouble simply due to overspending. No matter how your financial crisis began, it's time to start the repair process.
Whether facing a truckload of debt or just trying to gain some control over a worsening situation, you can start now to take steps in the right direction.
The first step to controlling your financial situation is to avoid overspending. 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 unnecessary and frivolous purchases. After two months you will continue to keep track of your income and expenses so that you have an actual record month-to-month of your spending to help keep you on track and within your budget.
To 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, birthday and holiday expenses etc.
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, public assistance, etc.
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 - it is not etched in stone. 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 more drastic adjustments. 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? Maybe you can cancel the gardener and the gym membership, get your exercise mowing the lawn, and save a few more extra bucks.
Making sacrifices is not new to most of us and most of us know what we can do without and what we can't. Leaving room for a few luxuries in your budget makes a budget much easier to stick to.
Our next article will address prioritizing essential and nonessential debts.
This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. Visit our Web Site at www.pbstax.com.
Everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.