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Chapter 3: Building and Sticking to a Budget
Book I
Taking
Charge
of Your
Finances
If your deficit is small and most of it is due to waste and fluff, you may be able
to move your budget into the black just by eliminating nonessentials. But
maybe not. Instead, you may have to go through several rounds of budget-
cutting and do some serious belt-tightening before your household's total
monthly spending is less than its total monthly income. Use your worksheet
to calculate the impact of each round of cuts on your budget's bottom line.
For many spending-reduction suggestions, check out our ideas in Book I,
Chapter 4.
Reducing debt before saving
If you contribute to a savings and/or a retirement plan, stop doing that for
now. Use that money to cover your living expenses and pay down your high-
interest debts. Why? The money in your savings and retirement accounts
earns only a small amount of interest each month -- most likely far less than
the interest rates on your debts. When you have debt, every month you pay
more in interest than you can earn in interest on your savings, and you fall
further behind.
When your financial situation improves, start contributing to savings and
retirement again. But for now, you must put every penny you have toward
your essential living expenses and toward paying down your high-interest
debts.
Using other strategies
Moving your budget from red to black may require more than budget-cutting
alone. The same is true if you can afford to pay only the minimum due on your
high-interest debts. When you pay just the minimum each month, it takes
months, if not years, to pay off those debts, and you pay hundreds or even
thousands of dollars in interest -- dollars that you could put to better use.
What else can you do? Many parts of this book (especially in Book III) expand
on lots of ideas and strategies, but for starters, you can try these suggestions:
Increasing your household income: Get a second job, turn your hobby
into a part-time business, or let your boss know that you would like to
work more hours. If your spouse or partner is not working outside the
home, discuss whether a paying job makes sense -- at least, until your
finances improve.
Negotiating with your creditors: Some of them may be willing to lower
your monthly payments or make other changes to help you afford to
continue paying on your debts.
