Create A Healthy Budget

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Devising a workable budget provides an opportunity to take a realistic look at your financial situation and set monetary goals. When you keep a close eye on your spending, it's easier to successfully chip away at your debt.

Follow these steps to create a healthy budget sure to help with debt reduction:

1. Calculate your net income - Knowing exactly how much money you have to work with when it comes to paying off debt is your first step to a realistic budget. Besides your take-home pay, add in any other regular sources of money, including part-time income, tax refunds, child support, alimony, rents and royalties, and interest and dividends.
2. Add your expenses - Complete a thorough inventory of your spending by totaling all of your regular monthly bills, including credit card minimum payments and loans. Don't forget periodic charges, such as annual dues and property taxes. Add to this total an accurate accounting of your disposable income purchases like entertainment, clothing and restaurant meals.
3. Determine your cash flow - Subtract your expenses from your income to see if you're in the negative or positive each month. If you are in the red, knowing by how much gives you a figure to trim from your budget. For instance, if you find you spend $50 more than you make each month, you know that you must slash at least this much from your spending budget. If you're in the black, this tells you how much money you can put toward debt and savings.
4. Set goals - Make a list of your financial goals, starting with your top priorities. It's tempting to want to pay everything off all at once, but it's not realistic -- and such a mentality can cause you to give up on budgeting. Start with one or two goals, such as paying off a credit card and building an emergency fund. Determine how much you want to put toward each goal on a monthly basis.

Developing and sticking to a debt-reduction plan might seem like a lot of work, but keep in mind that a balanced budget means you get out of debt sooner.

Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.