Many people have found themselves in a financial disaster from various life situations and are trying to take the proper steps to get their finances back in order. The road to financial recovery takes a lot of dedication and discipline. Financial recovery requires that you either increase income, reduce expenses, or both. When your expenses exceed your income, you need to take action toward cutting down expenses. These actions will help you get your finances back in order. Anything outside of food, clothing, and shelter is considered a luxury, and the amount of money spent on luxuries must be reduced during a financial recovery.
Making small changes in your financial habits can greatly improve your financial situation. One of the most important steps on the road to financial recovery is to spend less than you earn. Changing your spending habits, by living below your means, is an essential part of financial recovery as well. To determine where to adjust your spending habits, you must determine where you spend your money, and how much money you spend in those areas. This will allow you to identify where you are able to make small adjustments that will make a large impact.
Budgeting provides you with the data you need to make healthier financial decisions by showing you how your money is spent. Budgets will provide a detailed picture of areas in which you may be spending too heavily. Creating a budget is a great way to plan and track your spending and income. Budgets will show your cash purchase history, which can provide a snapshot of areas that may free up even more money to put toward other critical financial goals. The budget will allow you to view how much you are spending on certain types of expenses against the amount of income you have coming into the household. A budget will help you keep your finances under control. Once you have created the budget, you are still held accountable for following through and making the necessary changes to positively impact your financial health.
There are many resources on the internet that can assist with the creation and tracking of a budget. Some banks can also track your spending for you by categorizing the transactions that are made from your account. This gives you easier access to view where most of your money is being spent. The road to recovery can be a long and trying process. To be successful you must fight temptation and stay disciplined by sticking to your budget. As a result, you will soon see and feel the benefits of reducing your financial burdens. For additional resources on how to budget your finances please visit moneymanagement.org or practicalmoneyskills.com.
By Shalena Gonzales
Financial Aid Specialist, American Public University