How to Manage Your Budget During These Difficult Times

Manage your expenses until your revenue increases.

In difficult financial times, changes as small as rising gas, food or utility costs can cause the cash going out to exceed what you make. Rather than cover the negative cash flow situation with a credit card, make changes in your daily life to keep your budget in check and avoid creating a disastrous financial situation with credit balances you can't pay.

Things You'll Need

• List of monthly expenses
• Copies of service contracts

Instructions

1. Start an emergency savings account. While it might seem difficult to save during tough times, set aside at least a small portion of each paycheck to cover future emergencies before buying any nonessential item. Use your emergency fund as insurance for unexpected bills to prevent the need to use a credit card or to delay payment of essential bills.

2. Pay cash for what you need or find a way to get items for free. Eliminate the excess budget drain that comes from credit card interest. Contact friends and family to set up bartering arrangements trading your labor or skills in exchange for items or services they offer.

3. Analyze your debt and expenses. Define your needs and wants. Review monthly bills to determine which services must remain in tact and which allow reduction without large contract fees. Some bills may fall into both categories. For these, like your basic phone line, retain the necessary portion, but eliminate additional features that add cost. Replace entertainment items like cable service with DVDs borrowed from friends or with a game or reading night.

4. Cut your expenses. Reduce your power bill by unplugging appliances when not in use. Hang your laundry out to dry and run the electric dryer only briefly to reduce the wrinkles of the clothes. Plan your meals around sale items to cut your grocery bill. Make meals from scratch rather than premixed ingredients. Drink water instead of soda or buy juice concentrate instead of ready-made drinks.

5. Stop major purchases temporarily or find another way to fill the need. If an item is not needed immediately, delay the purchase for one week and re-evaluate whether the benefit of the item justifies the impact on the budget. Determine if a rental item satisfies the requirement of equipment not needed on a regular basis.

Tips & Warnings

• Base your initial budget on expenses incurred in the last three months for the best starting point.

• Grow your emergency account to cover at least three months' of salary. Increase the number of months if your employment stability waivers.

References

• CNN Money: 5 Steps to Building an Emergency Fund; Joe Light; Aug. 2008
• Bank of America: How Much Should I Spend on Key Categories
• MSN Money; How Much Should You Spend On . . . ; Liz Pulliam Weston
• "Good Housekeeping": 125 Ways to Manage Your Money
• Bank of America: Stretching a Paycheck