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Budget your way to wealth

By L. Marie Joseph · Bankrate.com
Monday, April 4, 2011
Posted: 12 pm ET

There is no law that says you should upgrade your apartment, buy a brand new car and drink top shelf vodka as soon as you receive a college degree. So what's the hurry? Slow down. As you begin to make money, start to save it. Don't rush into heavy car payments and save at least three months' worth of expenses first before you think of splurging.

This is the time to develop your wealth-building strategy. Sort out all your expenses by writing down every single expense or using an online budgeting system such as Mint.com. Make sure to include debt as well as the usual necessities in your budget.

If you choose to write it out, start by putting your net income at the top of the page, followed by all your monthly expenses. When completed, compare your spending each month to your net income. If your debt-to-income ratio is over 20 percent, you need to start cutting back. Look through your expenses to find the money leaks, figuring out which items to keep and which ones to cut back on or even eliminate. Once you've lowered your debt to below that 20 percent threshold, try your best to keep it as low as you can. You want to keep it manageable, if not nonexistent.

Example of debt/income ratio:
Your (monthly) income    $3,000

Monthly debt payments
Car payment                   $400
Loan payment                 $100
Visa                                   $200
MasterCard                       $50
_____________________________
Total (monthly) debt        $750

750/3,000 = 0.25

Your debt-to-income ratio= 25 percent

To pay off debt, research to find the best way that could work for you. I'd suggest knocking out the smallest debt first so you have one less payment to make. You may have to generate more cash flow to help get out of debt. Having an added way to bring in cash can put you in a better position to handle unexpected expenses without incurring more debt.  Remember, in the end, you are responsible for your own destiny. Accept your personal responsibility.

L. Marie Joseph has educated several college graduates in breaking the barrier from getting by with money to getting ahead with money. She is the author of "First Generation White Collar: A practical guide on how to get ahead and not just get by with your money."

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