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Tackling debt: 7 steps to creating a budget that works

Debt often feels like a race that you can never win. Debtors struggle to make payments every month, sometimes without even touching the principal balance of their loans and bills. One of the most fundamental solutions to debt is to create a budget. While a budget is not a be-all and end-all answer alone, it is an essential part of the solution. However, it is important to create one that works for you.

A budget will give you a clear picture of how much money you make vs how much you spend. Furthermore, it will help you make small adjustments in your spending that can add up to big differences at the end of the month. Follow these seven steps to get started.

1. Write down your fixed expenses

Fixed expenses are bills that cost the same amount of money for every payment. These will likely include rent, mortgage payments, utilities, loans, vehicle insurance and other monthly expenses. These are more predictable and will likely not change from month-to-month.

2. Write down all other expenses

Next, sit down and read your bank or credit card statement to determine variable monthly expenses. Find out how much you typically spend on groceries, gas, eating at restaurants, buying clothes, toys, medical costs, and unplanned events. Do these costs vary widely from month-to-month?

3. Write down how much money you make

List how much money you receive per month from your job, but also include things such as spousal support, child support and other sources of income.

4. Determine the difference

Subtract your expenses from how much money you make. The amount left is how much you are saving. The goal will be to adjust your budget so you can increase the money leftover every month to pay down your debt. You should aim to pay more than the minimum monthly payments on loans and credit card bills.

5. Find out where you can reduce variable spending

Variable spending is where a lot of money is lost every month. The little things add up. Buying lunch at work might be a small daily expense, but can cost over $100 every month. However, making little savings every month can be just as helpful. Try cutting down on eating out, buying clothes and those little impulsive purchases every week.

6. Make a plan

Create a spending budget at the beginning of every month. Write down what you spend every day that month in a spreadsheet. This way you can determine if you are on track as the month progresses.

7. Do not give up

Budgeting takes a lot of self-discipline, so give yourself some leeway if you do not make your budget the first month. You may need help from an attorney who specializes in debt relief. An attorney can help you create a workable budget and provide a number of avenues for debt relief.

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