Each year, thousands of Americans make a New Year’s resolution to get their finances in order, but settle back into old spending habits by mid-year. Experts from DebtXS™, a national leader in debt settlement and negotiation, encourage consumers to get back on track by setting up a realistic budget that will eliminate debt.
“A good long-term budget starts with truly understanding where your money is going,” says Paul Boyd, executive vice president of DebtXS™. “Calculate every penny that is coming in and going out. It’s not easy, but in the end you will have a clear understanding of your overall financial situation so that you can make realistic plans for the future.”
Boyd says many consumers will try to set up a budget by keeping a running tab in their heads or using a best guess. When using this method to set up a budget, it is easy to overestimate income and underestimate expenses.
Consumers then become frustrated when it is difficult to live within that budget. He stresses that a precise account of current household income and average monthly expenses is critical to creating a successful budget that will become a long-term routine.
“It takes some time, hard work and a true commitment in order to make a budget work for you and ultimately eliminate debt,” Boyd says.
Before preparing a budget, Boyd suggests the following:
1. Set a day, usually the first of the month, to start gathering information, and commit to a day at the end of the month to start using the information to set up a budget.
2. Spend some time each day to gather information. Be sure to collect 12 months worth of bank statements, checks and check registers, and income statements including investments, pay stubs, rental income, child support, etc.
3. For one month, track all your expenses. Keep a small notebook with you at all times and note the date, item and amount spent each time you make a purchase. Be sure to include soda, coffee or snack purchases, dinner, movies, gas, groceries, utility bills, loan payments, etc. This will give you an overall snapshot of how you are spending your money and where some future cuts could be made.
4. At the end of the month, take a legal pad and all the information you have gathered and prepare your budget.
When preparing the actual budget, Boyd recommends first looking at current household income. This should include your average monthly salary (without taxes), as well income from other sources such as rental property, interest and dividends, alimony, maintenance or support payments, social security or other government assistance, pension or retirement.
Once current income is established, Boyd says the hard work comes in figuring average monthly expenses.
“It’s important to take the time to account for every single expense, not just focus on the fixed monthly payments,” Boyd says. “By adding as much detail as possible to the budget, you reduce your chances of straying from it.”
Boyd recommends including the following items into any budget:
• Rent or home mortgage payments (include lot rented for mobile home)
• Real estate taxes (if not included in your regular mortgage payments)
• Property Insurance (if not included in your regular mortgage payments)
• Utilities: electricity, heating fuel, water and sewer, telephone, gas, cable, DSL service, cell phone
• Home maintenance – figure out what you spend a year and divide by twelve. (fix a leak, paint, general overall house maintenance.)
• Food (you can get that from your small notebook)
• Clothing (every year when the kids go back to school and they get new clothes; figure out the monthly average)
• Laundry and dry cleaning
• Medical and Dental expenses: prescriptions, co-pays, etc.
• Transportation (not including car payments): oil changes, regular vehicle maintenance, registration fees, etc.
• Recreation, clubs and entertainment, newspapers, magazines, etc.
• Charitable contributions
• Insurance (not deducted from wages or included in home mortgage payments), including homeowners/renters, life, health, auto and any other.
• Car Loan payments
• Minimum monthly credit card payments
• Minimum payments for furniture, appliances, electronics
• Alimony, maintenance or support you pay to others
“Seeing these expenses on paper helps consumers determine areas where they can cut back on unnecessary purchases and shop around for a better insurance rates or a better long distance plan,” says Boyd.
Current monthly income should be subtracted from the average monthly expenses. Boyd says that any amount left over should be applied toward reducing debt, set aside for an emergency cash reserve, or invested.
Consumers who do not end up with a budget surplus, even after cutting out unnecessary expenses, are encouraged to seek professional assistance to manage and ultimately eliminate debt.
DebtXS™ is a recognized leader in the debt settlement/negotiation industry and was recently ranked number 17 on Entrepreneur magazine’s Hot 100 list of the fastest-growing companies in the United States.
DebtXS™ was founded by Ken Talbert in 2002 after identifying a need for a company that would empower consumers with honorable alternatives to bankruptcy through the personalized and proven services of debt negotiation. DebtXS™ has grown exponentially and now has more than 120 employees, serving more than 12,000 customers and settling more than $3 million in consumer debt each month.
As the industry grows and matures, a steadfast approach will make certain that settlement/negotiation becomes a permanent option for the consumer who is burdened with debt and is facing financial hardship. DebtXS™ actively works with TASC and other organizations to promote the debt settlement/negotiation industry, as well as to draft new standards and legislation to help consumers.