Monday Money Sense

The First Step to Getting Out of Debt

Step One-Live within your means. I can tell you tons of tips for how to pay down debt, but it would not do you any good if you spend more than you make. Unfortunately, most people don't realize they are spending more than they make! This happens because many people can afford their minimum payments on their credit cards and live paycheck to paycheck, but without much thought add a little to their overall debt each month by charging away. So in order to really see how much is coming in and how much is going out we are going to do an exercise to find out. This will take a little bit of time and effort (and a calculator would probably be useful as well), but it will help you to be really honest with yourself on how much is really coming in and going out. Don't guess or round, be exact as possible and you will get the best picture of your money.

1. Gather 12 months worth of statements for all bank accounts and all credit cards. 
2. Head over to this online calculator and start entering in the info it asks for. For each category go through every statement for the amount.
3. You'll notice some things you do not pay for monthly. To figure these items out, find out how much you pay for them a year and then divide by 12. For example, perhaps you only pay your home insurance once a year. To find out the monthly amount take the yearly premium and divide by 12. Another example would be car insurance that you may pay twice a year. Add the two payments together and divide by twelve.
4. You'll also notice somethings are not the same every month (in fact a lot aren't!). To figure these out you will add together all instances of the item and divide by 12. These items will be things such as groceries, gas, eating out, entertainment, etc. Be real honest with yourself even if that means adding up every single time you ate out the last 12 months.
5. Press the "Get Honest!" button, the calculator will now tell you if you are spending more than you bring in or vice versa.

Now that you know you can do something about it! I recommend if you have any credit card debt, lock up those cards right now (or freeze them in a block of ice or any place where it will take effort to get them out to use), so you won't get into any more debt! Now that you know you can start thinking of ways to cut back.

We'll discuss many ways to cut back and get rid of the debt you already have in the future, so come back every Monday for some more Money Sense.