There are many things in life that can derail even the best money management plans, such as unexpected car or home repairs, illness, or job loss. When in crisis mode, most people just take things day by day, hoping to get by. When the dust settles, they are often left with a financial situation that is less than rosy. There are no savings to speak of. Their credit is shot. There is debt that needs to be paid. However, with hard work and dedication, a healthy financial future is possible.
This module covers the steps you can take to rebuild after a financial crisis, including:
- Debt Repayment
- Rebuilding Credit
- Emergency Savings
- Replenishing Retirement Savings
Chapter 1: Budgeting
Regardless of whether you are a millionaire or making minimum wage, the foundation of financial success is the same – budgeting. Budgeting means analyzing what you have coming in, then developing a reasonable and goal-oriented plan for what goes out. Essentially, a budget is a tool that can help you make the most out of your money. With it, you will be able to pay your bills on time, save, and eliminate debt.
Use the Budget Worksheet to list your current income and expenses. If you don’t know exactly to the penny what you are spending on groceries, clothing, or other items, don’t fret. Just put down your best estimate for now. By tracking your expenses for a period of time (you can use the Tracking Worksheet or a computer spreadsheet), you can – and should – create a more accurate budget in the future. Don’t forget to include debt payments and savings. For periodic expenses, such as vacation, determine the annual amount and divide it by twelve.
Though no two budgets are alike, there is a common rule: expenses should never exceed income. If you are currently spending more than you are earning, think about ways you can increase your income and/or reduce your expenses. Can you get a part-time job? Rent out a room in your house? Cut back on dining out? Skip the daily $4 mocha latte? Get a cheaper cable package or cut your land-line phone? Increasing income can be difficult, but most people have some expenses they can trim. Honestly assess what is a necessity and what isn’t. List the changes in the proposed column of the budget worksheet.
Your budget is only helpful if you follow it. Tracking your expenses on an on-going basis can help you recognize when you should stop spending because you have reached your limit in a particular category. However, if you overspend once in a while, try not to get discouraged. No one is perfect. If it happens often, you may need to readjust your budget so that it is more realistic. For example, perhaps you can’t keep your food costs at $150 a month, but you can cut back on your clothing purchases.