Spend less than you earn.
Duh, you say? Well if it was that easy, nobody would be in debt, right? So the philosophy is simple but the execution simply isn’t, at least for most people. One of the first steps most any financial counselor would recommend is developing a budget that shows how much your household earns each month and what your expenses are. Tallying up what comes in should be a pretty simple task. (And if you have so many different income sources that it isn’t easy, then you probably don’t have a debt problem!) Tallying what goes out, however, can be a little more overwhelming, particularly if there is more than one person in the household. You’d also be surprised at how much more you actually spend than what you might include if you tried to sit down and make a list. Instead, try developing your expense list in a couple of steps:
1) Make a list of anything your household pays quarterly, semi-annually or annually, like property taxes, insurance, etc. Include holiday shopping on this list!
2) Then, for 60 days, have each member of the household keep a journal of EVERYTHING they spend. This will serve several purposes:
a. This will help you identify your typical monthly expenses (you can average the two months).
b. It may help you begin to see some patterns in your spending habits.
c. It may make you realize just how many unnecessary purchases you make.