Did you make a new year’s resolution this year to solve your debt problem? If so, you cannot really begin to achieve this goal until you take a complete inventory of your financial situation. Make an itemized list of your regular expenses, current and overdue debt, and household income. For some, this is a challenging task because many of us do not even know exactly how much we owe all of our creditors, especially when dealing with a large amount of overdue debt.
If you groan at the thought of establishing a weekly or monthly budget, take it slow. You may not even know the appropriate amount of money that should be designated to your different spending categories because you have not kept track of your regular monthly expenses. For example, do you really know how much money you should budget for your vehicle’s weekly gas expenditures? How about the amount of money needed for lunches at work? These are just two of the many examples of regular monthly expenses that need to be considered when preparing a budget. If your finances have been out of control for quite some time, you are probably not yet ready to prepare an effective budget.
Rather than establishing a budget right off the bat, spend the next month only recording your daily expenses. Unless you have a good idea of how much money you spend in a typical month for groceries, entertainment and so on, you probably cannot accurately prepare a spending plan or budget. Record every single dime you spend, no matter what. Even when you use pocket change for the vending machine at work or your Sunday newspaper, write it down. Be completely honest in your spending record because there is no judgment attached to it at all. You are simply recording every single expense so you will have a basis from which to establish a spending plan in the future. However, this month, do not even think about a budget or spending plan. Some people carry a little notebook around with them to record all expenses, while others prefer to record everything on a spreadsheet. Choose the method that is most convenient for you because you need to keep up on it every single day for one month.
Okay, so now that you have a plan in place for recording your expenses all month, you have some time for important information gathering. You have an entire month to do this, so your best bet is to spread it out and do a little bit each week. Open your credit card bills and loan statements This can be a scary proposition for many people, especially if you have been avoiding them for awhile. You are not doing this to beat yourself up. You are simply opening them to gather information. Make a list that includes each individual debt with its entire balance owed and interest rate. That’s it! Remove your emotions from this task if you need to gather the courage to do it. Pretend you are opening the bills of someone else, if necessary. This can be very overwhelming, so do not put it off until the last day of the month. Set a goal of opening two statements a day or three bills each week. Do whatever works for you. It all depends on how many separate debts you have and how much you can handle at one time without losing your nerve or giving up. If you are unsure about a particular debt or its interest rate, write it down so you will remember to investigate it later.
For the next thirty days, make these two commitments toward achieving your goal of solving your debt problems.
1. Keep a daily spending record.
2. Write a list of debts with balances and interest rates.
These two tasks will provide you with clarity about how much money you spend, preparing you to begin the next phase of your new year’s resolution. For the next month, do not worry about the details of your future budget or debt repayment. Just work on these two tasks to get you started on the right track for the future.