Taking control of your finances is a very important part of getting out of debt permanently. If a person is unable to handle their finances and make sure that they are not spending more money than they should be, they will be unable to take the steps necessary to get themselves out of debt and stay out of debt for the foreseeable future. One of the easiest ways for a person to take control of their finances is tracking their spending and their debt.
Many people do not know what they are spending their money on each month because they are not keeping track of the things that they are buying and how much they are paying for them. Once these people begin to track what they have been spending their money on, they are often surprised to see the amount of money they have been wasting on frivolous purchases. Before any financial plan can be put into place to manage the finances for the household, you must track your spending to find out what the money is being spent on.
Tracking your monthly expenses is the first step in taking control of your finances. This includes your bills, any other major monthly payments, weekday lunches, movie tickets, vending machine purchases, and anything else that you spend money on. Although these purchases may seem trivial, you would be amazed at how much these small purchases add up over the course of a year. To be able to trim your spending in the areas where it is necessary, you need to discover when you are spending money that you don’t have to on things that you do not really need.
For a period of two to three months, you should track every single thing that you are spending money on, no matter how small the amount of the purchase is. Sometimes the person’s largest expenses for the month are on routine purchases of less than $10 per occurrence. The easiest way to track your expenses during this period is to keep a pen and a small notepad in your pocket or purse. This way it can be pulled out and updated each time you place an item on your credit or debit card or pay cash for a purchase. Tracking everything during this time period can help you find patterns in your spending and areas where costs can be cut.
Completing The Process
Once you have tracked your spending for the recommended time period, the next step is to find the areas where your spending can be cut. By identifying the areas where your spending is excessive, you will be able to keep more money in your bank account and will be able to confidently make a budget that allows you to spending less on your monthly purchases. You may be able to find several areas where money can be saved by substituting one thing for a similar item that is cheaper, such as brewing coffee at home instead of buying it at a coffee shop or packing a lunch to eat at work instead of purchasing a meal at a fast food or casual restaurant. You can also switch to Cash back credit cards and get better rewards than useless airline miles. The money saved from eliminating these expenses can be added to a savings account or used to pay off any debts that you may have.