by Anne Mace

Everywhere we go, we hear of the economic downturn – how the stock market has plummeted the most since the Great Depression.  Our world is ending.

Or is it?

Americans seem so inclined to believe the part of our Constitution that says you have the right to everything: speech, religion, healthcare, a home, a good job, and a fancy car.

While I’m not here to debate what is or isn’t a right, I will say that we need to be the ones responsible for our money issues. Most families today are dependent on two incomes just to make ends meet – and many people live from paycheck to paycheck. Isn’t there a better way to live?

You bet there is!

Stop Keeping Up With the Jones’!

I will be the first to admit that I’ve been in financial difficulties I’m just now pulling myself out of; but the reality is, I got myself into most of my situation. Part of it was bad decisions and part of it was someone else stealing my identity, costing me thousands.

I watched my parents struggle for years, as well. We grew up poor, I mean really poor. We had a house with no air conditioning. I remember watching the IRS lady sit in front of my mother and tell her she had to come up with money right then. I watched my mother explain to her with tears in her eyes that she didn’t know how she was going to feed us, much less make the payment.

I knew I didn’t want this life, yet when I started getting a job and making money, I put myself in the predicament of borrowing from Peter to pay Paul, resulting in a massive debt for my income ratio – even without the student loans.  And when I thought I had gotten myself out it, there I was again, living from paycheck to paycheck.

So how do we get to a place of financial security?

Unless you’re independently wealthy, have too much income, or no bills, you need to budget.

The first item you must recognize in setting your budget, is that you need a financial plan.

Where do you want to be in 10 years?  In 5 years?  Or even when you retire?

Let’s lay out some basic principles found in every major financial planning tool, most notably Dave Ramsey’s program, which I personally recommend.

• Save $1,000 and have it readily available.
• Pay off credit cards – start with the smallest one first.
• Save 3-6 months of living expenses.
• Pay off your house (or start saving for one)
• Invest
• Save for vacations

These are not exactly the principles of Dave Ramsey (although I do advocate most of his program), but starting with these small steps is essential to healthy planning.

Budget 101

Getting serious about a budget and having the goals we laid out in the previous section requires discipline and dedication (much like eating healthy, getting in shape, or finishing school), but I am confident you can do it.

Let’s take look at a sample budget.

Income: This is the money you expect to receive each month. If you make a salary and it’s $3,000 a month, you’re pretty well set, but you cannot exceed this amount in expenses. Pretty basic, but many of us do it with credit cards.

Expenses: You have the necessary expenses you must pay (mortgage/rent, car payment, utilities, and so forth), and you have those which are variable – including groceries, gas, medications, and so on.  While these vary, it’s essential to include them. And don’t forget: Cable is not a necessary expense. Neither are Prada shoes or Gucci purses.

Basic example using the above parameters:

Income: $3,000 per month
Expenses:  $2,620
Rent/Mortgage: $900
Utilities – avg: $300
Car Payment: $400
Insurance payments: $200
Phone/Internet/Cell: $150
Groceries – avg: $300
Medications/necessities: $100 (be sure to include all of them)
Gas: $120
Credit Cards: $150

As you can see, there’s a remainder of $380 per month with 2 expenses remaining – one is entertainment, and the other is savings.  Entertainment is the most important to keep under control. If you allot yourself $25 per week, then the total per month is $100, leaving the remaining $280 to go to savings.

At this rate, you’ll have a $1,000 saved within 4 months. Remember these are the emergency funds you may need at any time for things like car repairs or medical expenses. You may have to constantly redo this procedure.

Of course, this is just an example. For families with multiple children, there’s no way $200 for groceries will be attainable. Be real when looking at your budget; you may only get to spend $5 per week on entertainment. This is also a time when you stop charging on your credit cards – unless you have the discipline to charge exactly what you know you will pay off.

Wrap Up

Saving money and becoming debt-free is difficult at best, but once you create and stick to a financial plan, you’ll have all you need to keep money woes at bay. In the next article, we’ll discuss getting out of credit card debt, retirement, and the importance of constant budgeting.

About Anne Mace

Anne has her MBA from the University of Texas at San Antonio, and spent eight years as a Financial Director or other fiscal capacity director with Government and Not for Profit agencies.  She is also an adjunct college professor for Accounting.