Living Within a Budget
Once you begin to see where the money goes each month, it's time to create a spending and savings plan to make sure you don't spend more than you make.
Before you start groaning, remember that you're controlling your spending for yourself: by consciously deciding where your dollars go each month, you can make sure you have enough cash to make purchases or investments that truly satisfy you.
Step One: Calculate Your Income
You've already figured out how much you spend each month. Now you need the other side of the story: how much you make. To figure this out, take out a clean sheet of paper.
- List all jobs and sources of income (including alimony, child support, public assistance, retirement benefits, etc.)
- Next to each income source, note how much you receive during each pay period (if it changes, average the last 12 periods)
- Next to each amount, note how long each pay period is. Then calculate your monthly income from each source (for biweekly sources, multiply by 26 and divide by 12; for twice-monthly sources, multiply by 2)
- Add the monthly income from every source together – this is your total monthly income
Step Two: Compare Your Income and Expenses
Take a look at what you make compared to what you spend. If you haven't already calculated your expenses, visit our Adjust Your Spending page.
If the "spending" column totals more than the "income" column, you're headed for trouble.
But, by following some of our expense-trimming tips and using a little creativity, you should be able to find ways to better balance your budget.
Step Three: Stick to Your Budget
Once you've figured out ways to follow the golden rule of money (spend less than you make and save the rest), you can start following through on your big plans.
Although the idea of sticking to a budget may sound horrifying to some people, keep in mind that this isn't a punishment or penance for wrongdoing.
This is a way of prioritizing your income: if going to the movie theatre on Friday nights is your favorite thing in the world, your budget can help you do it.
By finding places to trim that won't bother you (switching to store-brand soap, making sure lights are turned off when not in use, eating out less often), you'll leave room in your budget for the items that truly matter.
And remember: you're not alone in trying to save more and spend less.
The Internet provides a wealth of resources for those looking for tips on thrifty living. Check out The Debtress, who specializes in defending your dollar.
Once you've started budgeting, you're ready to think about saving...
The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.