| Getting the debt monkey off your
back |
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Ready, set, budget!
Anytime is the perfect time of year to change a financial strategy
that doesn't work. But this is an ideal time, because we need to
assemble our tax information anyway, which affords us the opportunity
to take a hard look at where our money went last year. Particularly
if you itemize rather than take the standard deduction, you'll need
to comb through your credit card statements and checking account
registers to pull together items that are tax-deductible. (Maybe
you've already assembled this information in a more systematic way
throughout 2005, but follow along anyway.)
Rather than just picking out those expenses that are deductible,
list all your expenses of 2005 into separate categories using old-fashioned
paper and pencil: rent or mortgage payment, electric, phone, taxes,
insurance, groceries, restaurants, golf, dry cleaning, charitable
contributions, vitamins, medical expenses, hair-salon visits, sundries,
etc. Include a date with your expenses so you can later break them
out on a monthly basis.
Add up the numbers. Did you spend more money than you made last
year? That's an indication that something is amiss. Look at the
superfluous categories, the ones that aren't necessities, that took
you over the edge. Did you dine out a lot last year? Maybe you can
eat in more often this year.
The idea is to thoroughly understand where your resources went
so you can gain better control of them. You can use last year's
figures as a basis for projecting your future budget.
At the same time, begin tracking all your expenses going forward
to assess how you're doing in comparison with your projections.
Saving as a monthly expense
If you wait until you pay all your bills before setting money aside
into savings, guess what? You won't have anything left to put there.
When designing your budget, make savings a fixed monthly expense.
You can keep the data in a notebook or a budget workbook. Alternatively
you can buy more sophisticated
programs such as Intuit's Quicken or Microsoft's Money and input
the relevant data there. Just understand that the success of your
system -- whatever type you adopt -- depends on your commitment
to track your money now and going forward.
At the same time, add up your credit card balances and devise a
plan to pay it off deliberately and as quickly as possible. Use
Bankrate's debt
calculator to determine how long it will take to gain freedom
from creditors.
Best wishes for a prosperous and debt-free year!
If you have a comment or suggestion about this
column, write to Boomer
Bucks.
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