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Creating a budget that works

By Diane Griffith, Staff Writer, myOptumHealth

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Are you paying for food with your credit card -- then paying your credit card bill with another credit card? Are you panicking because the cost of living is increasing -- but your paycheck isn't?

If you feel like you can't keep your head above water, it's time to regain control of your finances. The first step is putting yourself on a budget.

Setting a budget

1) Calculate your monthly net income. This is what you bring home after health insurance fees, social security, taxes and other deductions. Include child support, alimony payments and any other income you receive regularly.

2) Make a list of expenses. Don't forget things like entertainment, clothing and copays at your doctor's office. Divide your expenses into three categories:

• Fixed expenses: Occur each month and do not vary in cost (e.g., your mortgage and car payments).
  
  
• Flexible expenses: Can change each month (e.g., food, utilities and entertainment).
  
  
• Periodic expenses: Don't occur on a regular basis (e.g., clothing and car repairs). Calculate how much you spend on these expenses each year, then divide by 12. Put that amount aside each month so you'll have it when the bill is due.

3) Pay savings first. Try to put 10 percent of your paycheck into savings. If that's too much, choose an affordable amount and stick to it. Consider it a fixed expense -- as important as your rent or car payment.

4) Unload your debt. If you pay the minimum each month on your credit cards, start paying more. You'll pay your debts off sooner -- and pay less interest

Ways to cut back

If you're spending more money than you're bringing home, try cutting back on some flexible expenses:

• Pour coffee into a travel mug when you leave for work instead of buying it at the convenience store.
  
  
• Try brown-bagging it instead of going out for lunch.
  
  
• Don't dine out as often. If you eat dinner out once a week, go every two weeks instead.
  
  
• Clip coupons and buy store-brand items. Shop for bulk items at budget warehouses, but be sensible. Don't buy a case of salad dressing if it will expire before you can finish it.
  
  
• Don't carry around credit cards. Make it hard to use your credit card. If you don't have the money now, wait to make the purchase if you can.

If you're still over budget, take a look at your fixed and periodic expenses. Are you using all of the minutes on your cell phone or watching all of those cable channels? Try a cheaper plan. Are you using the gym often enough to justify the membership costs? Why not buy some weights, take a daily walk or start running instead? Check with your doctor, though, before you change your exercise routine.

Other measures

You've cut out everything you possibly can and you're still over budget. What do you do next? Consider these options:

• Working overtime or getting a part-time job. Will it fit into your schedule? Will there be costs to your health or your family?
  
  
• Taking out a debt consolidation loan. This will work only if you're committed to avoiding future debt.
  
  
• Contacting an accredited, non-profit credit counseling agency. A counselor will work with your creditors to lower your payments.
  
  
• Contacting a bankruptcy lawyer. As a last resort, think about talking to an attorney. Bankruptcy will damage your credit for a long time, but, at this point, your credit may already be suffering. Bankruptcy can give you a fresh start and get you back on your feet financially.

View the original Creating a budget that works article on myOptumHealth.com 

SOURCES:

• Consumer Credit Counseling Service. Six tips to eliminate credit card debt.
• Consumer Credit Counseling Service. Ten ways we waste money.
• Fannie Mae Foundation. How to buy your own home.
• Clear Point Credit Counseling Services. How to create a budget.