How to Stretch Your Income

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One of the goals of debt consolidation should be to end the cycle of too much month left without enough money at the end of your paycheck.

The first step in stretching your finances is to see how good you look on paper. I suggest that you print this article to use as a worksheet and reminder.

STEP ONE: Our Simplest Income Estimator

Last Year’s Income _____________

Divide by 12 _____________. This is the amount that you lived on for each month of last year. Even if your income has changed, it is still a good way to estimate your comfortable lifestyle on a basic budget. One key to managing debt in today’s world is to determine your own “needs versus wants”. The more comfortable you are with simple living, the easier it is to live within your means. Of course, this often is not the case. Have an objective discussion with your family about spending habits and plans for the future.

STEP TWO: Our Goal Setter

The simple format below is a good place to start. You can add as many rows as you need to determine whether or not to buy the things you would like. Comparing items in this format will help you to put in perspective what you want and what you need, as well as the financial hopes and dreams of other family members.

Ideally you should have two budgets – not budgets that compete against each other, but budgets that complement one another. Too often, people follow the expert advice of simplifying one’s budget regardless of what real life is like outside of the budget. Sometimes real life rears its ugly head when you least expect it.

The first budget is simple and lists that which you must spend every month. When payday comes, deposit everything (probably into your hungry checking account), and then immediately transfer the amount above and beyond your budget into a second account. This interest-bearing account becomes your second budget.

The 80/20 Rule. Economists talk about something called 80/20 in planning for costs. This means that 20% of all if your purchases take up 80% of your budget. Consider the items on which you spend the most, and you’ll see how quickly your monthly budget is consumed. We often throw away nickels and dimes, having been trained to respond only to the 20% figure as significant. Then, once major items have been paid, we miss out on the extras.

• Pay for truly essential items (housing, food, auto allowance, etc.) on a monthly basis.
• ONLY pay for truly essential items on a monthly basis. If tempted to purchase something through monthly payments (such as a new television), ask yourself if you seriously would consider buying the item if you had to pay the full amount right now. If not, it probably is not a good idea to make the purchase.
  

Other worksheets are available through debthelp.com that will help you to specify budget and debt counseling issues, while also providing you with skills to save more. The only cost is your time and commitment… and that’s no stretch at all!