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Money Management: Creating a Budget, Part 2

Jun 28, 2007 - You've now kept track of your spending, and made a comprehensive list of your monthly expenses. You've decided what to prioritize, and what things you've been paying for that may not be necessary.

What's next for building a budget?

Cut Down that Debt

Chances are, you've got some credit card debt built up. It's the American reality, and becomes a bigger issue as credit cards become increasingly available and easy to use.

Part of cutting down debt is reducing the temptation to use expensive credit cards everyday. Pay with cash for groceries, clothes, and other nonessential items. This reduces your reliance on credit cards, and increases your awareness of what money is being spent and how. Using cash makes it much easier to stick to your budgeted amounts for certain categories of items.

Now – how to get rid of your existing debt? Interest charged on credit cards is costing you dearly, and sucking away money you could use for monthly purchases or building savings. Begin strategically paying off your debt by making more than the minimum payment each month. Pay an amount that you can budget for each month, and stick to that amount until balances are paid.  You can tackle the credit cards with smaller balances first, or the credit card with the highest interest rate.

Live Within Your Means

Easier said than done, of course. Living within your means is defined by setting spending limits and sticking to them. At first, it may mean deciding what you need and what you want, and learning to resist some (but not all) of the things you want that drain your money.

Living within your means also means being smart about monthly expenses. There are some tried and true ways to reduce your monthly expenditures. Reducing the things you must pay for frees up more of your money to save, spend or pay down debt. Soon, you'll find that your “means” is significantly improved.

Here are some common ways that people can reduce monthly bills.

Small Changes:  

  • Bring your lunch to work instead of buying fast food
  • Use coupons and online services to save money on groceries
  • Shop for clothes and furnishings during sales
  • Turn down the water level on your washing machine and dishwasher (if water level is adjustable)
  • Turn the lights off, and turn heat or air conditioning down when not at home
  • Unsubscribe from cable/satellite service or cut back on extra subscription channels
  • Switch to a free Internet access provider, or watch for sales and subscription bundles
  • Find a bank with a no-fee checking account if you don't have one

Bigger Changes

These could be more difficult, and more painful. Think about lifestyle changes. Buy an expensive coffee in the morning? Brew your own. Do you smoke? Quit, and free up a surprising amount of money.

Here are some other ways to reduce monthly expenses on the big items.

  • Don't buy season tickets to sports, theatre, etc.
  • Trade in your luxury car or sport utility vehicle for a cheaper car with less fuel need and better mileage
  • Refinance your mortgage for a lower interest rate
  • Cut your taxes with itemized deductions and investment savvy.
Continue reading for the next steps in the budgeting process, including routine management and big budget blunders.

Releasing the Inner-Millionaire in You

Money Management Practices Worth Following

Money Management: Why Budget?

Money Management - Creating a Budget (Part 1)

Money Management - Creating a Budget (Part 3)

How Much Money Will You Need to Retire?

What's Your Investment Personality?

Keeping Your Eye on the Big Picture

Do Yourself a Huge Favor: Save 10%

An Emergency Reserve Account

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