Getting Back Into the Black

The first step for my family to get our spending under control and to start saving money was to determine where our income was being spent. It took about 2 hours total to get all of this information and then get it down into an easy to read format.

1. Calculate your income after taxes, this includes any paychecks you receive along with any other sources of income.
2. Make a list of all of your expenses. Anything you spend money on monthly needs to go on here. examples: rent/mortgage, gasoline, insurance, online services, groceries, dining out, etc.
3. Take all of the expenses you have written down and divide them into two categories. Discretionary (you dont HAVE to spend this money but you do) and Non-Discretionary (money that has to be spent: groceries, rent, gasoline, etc)
4. Add up your monthly expenses and subtract that total from your monthly income. If you end up with a positive number then you are already on the right track. If you have a negative number, you are spending more every month than you make and are forcing yourself further and further into debt.
5. Make adjustments to your spending to increase the surplus you have after all your bills are paid. This may include not stopping for a latte every morning or reducing the amount of channels on your cable bill to get a lower bill, or even something as simple as taking food to work for lunch instead of dining out every day.
6. Lastly, you want to make sure you review your budget every month. Keep track of your expenses for a month either through your bank’s online services, a notebook, or whatever system works for you. After a month of living on your budget, compare your actual expenses to projected expenses and see what area’s need more work.

Once you have yourself trained to live within the budget you have created you can start planning how you are going to save your surplus and what goals you want to set for yourself.

I have several financial goals I want to hit before the end of the year. 

 My #1 goal is to pay off at least half of my truck balance.  Its at a 10% interest rate and is not due to be payed off until 2011, if I can keep up with my aggressive payment schedule (an extra $2400 - $3600 this year) I can get it payed off by 3rd quarter of 2009.  It would save me about $800 and cut my loan term by almost two years.

My other goals are:

Emergency Fund: 4000
I’ve never had an emergency fund because I never knew I needed one until I set out to to take control of my finances.

New Baby Savings: 3400
My wife found out last month that she may be pregnant.  We’ll get the official word from the doctor next week.  In anticipation of that, I am putting the money directly into an ING savings account at the beginning of every month.

 Every other dime we have will be going into a savings account for our first home purchase some time in the next 3 years.  I need to start rebuilding my credit score before I can apply for a home loan, so I figured I may as well be ready once my score is where it needs to be.