This is the first and hardest step for many, but the most important. This is where avoiding the nature of your income and relative daily expenses come into the light.
It becomes so easy to just pay minimum balances and file the receipts away without paying much attention to how much is owed, how much is being paid in interest, and how long it will actually take you to pay off that debt. The reality is that avoidance does not make the finances get better; it only gets worse.
1) Gather all your household expenses
This includes expenses such as, electricity, mortgage, home or apartment rent, gas, water, groceries, and cleaning items, along with an estimate of maintenance expenses. These are your standard expenses that generally stay constant each month.
2) Gather all your medical expenses
Your medical premiums are probably already paid by your employer, so you don’t even see this money, which is nice. These medical expenses would include monthly medications and any monthly medical payments you made outside of your premium. For example, co-payments, or percentage payments of medical services rendered.
3) Gather your unsecured bills
These are the credit card bills that you may have been tucking away hoping that they would disappear. Bring them out as these can be a major part of anyone’s monthly expenses. Unsecured bills are those that do not have collateral attached to them.
4) Gather your secured bills
Secured bills are your loans that have collateral attached to them, such as a home equity loan.
5) Gather all your childcare expenses, if you have any
This would be babysitter expenses, morning care and afternoon care at schools, preschool and private school tuition, as well as lunch costs. Any activities that your children attend would also be in this category.
6) Gather all your personal expenses
This is a tricky one. This is not the CDs, and the latest gadgets. This is personal items that you need to purchase, such as hygienic items, make up, haircuts, vitamins, etc.
7) Gather educational loans
Educational loans have to be repaid, they cannot be negotiated down or written off in a bankruptcy. This is an essential obligation that needs to be repaid but, according to current tax laws, all interest paid on student loans is tax deductible. It’s a nice benefit on your taxes. This type of expense is something you don’t want to default on.
Defaulting on a student loan can lead to you being sued, wage garnishment, bad credit history, your tax refunds may be taken, or part of your social security could be withheld. There is no escaping this expense. The loan program has many solutions to help you if you are going through a difficult time to make payments.
8) Gather miscellaneous expenses
You can’t avoid this section. Birthday presents, children activities, luncheons at work, unexpected school events, and family picnics. These expenses need to be included, because it is all a part of life and an area that should be considered when reviewing they money you spend.
All these expenses should be gathered for the period of one full month, so for example, from January 1st to January 31st. Although many of these expenses will change each month, you will be able to get a general feel of the areas in which you are spending money. Keep each category separate and clip together