The process can be intimidating, but it lays the foundation for whatever moves you make. And it doesn’t have to be an awful experience. Get your family together now and get started. Here’s how:
Identify your goals. Your objectives will be guided by your own circumstances, which are likely vastly different from those of others. For instance, if you are retired, your financial map will look considerably different from that of a young married couple anticipating parenthood. Distinguish between short-term goals (getting rid of credit card debt, for instance) and long-term goals such as retirement. Once you have discussed your goals, compromising where necessary, begin creating a budget that will help you achieve these goals.
Identify all sources of income and make a list of monthly expenses and outstanding debts. The living expenses are usually pretty consistent and can’t be waived for other objectives. Then concentrate on debt elimination, even before working on retirement savings. Getting rid of the debt gives you more to stow away for the future. Go over your figures with a fine-toothed comb to see if there are ways to live more frugally so your leeway will be enhanced.
With all the ducks in a row and barring unexpected financial disasters, you are ready to put your plan (budget) into action. You will have a certain amount of money each pay period to pay down debt. Then the trick becomes to avoid the temptation to digress. You may have to adjust (see financial disasters, above) but stick with the budget unless there are compelling reasons to do otherwise.
Even with a budget in place, you need to reassess on a regular basis to be certain you are on track. Monitor spending carefully. It may have been frivolous spending that landed you in debt to begin with. Don’t let it happen again. Look continuously for ways to spend less.
Budgets are vital, but not set in concrete. Flexibility is essential as changing financial facts come into play. Talk about your budget monthly and look honestly at what is working and what is not. Readjust as necessary without throwing in the towel on your basic goals. Too much water under the bridge can wash away your good intentions and delay the progress for which you are reaching.