USE CREDIT WISELY, TRACK EXPENSES

Credit Cards get thousands of people into financial trouble each year. Designing a realistic spending plan will help determine how much credit you can afford - and will safeguard against using credit to supplement income.

One of the most important steps in establishing a money-management plan is to gain an accurate understanding of where your money goes each month. Ever wondered how Rs 1000 in ATM cash disappeared so quickly! Develop a budget that takes into account EVERY PURCHASE, an accurate budget means being more aware of each and every item you are buying.

Tracking ideas include:

Keep receipts - hang on to your receipts from each purchase you make, and add them at the end of the day. You might be amazed how much you're spending on things like lunch or coffee!

Include ALL expenses - many a well-intentioned plan is tripped up by not accounting for "unexpected" expenses like car repairs or veterinary bills. A workable budget allows for additional bills that are bound to crop up. Emergency funds should always be included in your budget.

SETTING UP A BUDGET

Write down specific categories that fit your family. No two families are alike. The following is a sample list, but obviously you may want to use the areas that apply to you.

• Housing - loan or rent, insurance, taxes, electricity, water, gas, telephone (landline and/or cell), cable TV/internet, repairs/maintenance, furnishings (appliances, furniture) cleaning and other supplies (toilet paper, cleaning liquids etc) and groceries.
• Automobile(s) - payments (loans/cab fares), petrol/diesel/CNG, insurance, maintenance/repair, other.
• Insurance - car, life, medical, other.
• Debts - credit cards, loans, other.
• Entertainment and recreation- eating out, hobbies, vacations, club memberships other.
• Medical expenses- prescriptions, dentists, doctors, others.
• Personal care and clothing- everyday clothing, work related attire, toiletries, beauty shop, barbershop other.
• Education- tuitions, coaching, field trips, books, school supplies, school canteen, other.
• Home help- cook, driver, domestic help, watchman other.
• Gifts- birthdays, anniversaries, festivals, donations, others.
• Miscellaneous- laundry, postage, subscriptions, pets, pocket money, allowances, other.

Make an initial estimate of current monthly expenses. Some are harder to calculate than others because they vary from month to month. For instance, you may spend more on travel in the summer because of vacations. Other expenses, however, do not change- like loan or rent.

ADJUST AND ANALYZE

Add up your expenses. Chances are you'll find you've allocated more money for spending than you actually have in income. Now you have an idea of how you got into a financial jam!

Let's get more specific. If your first budget attempt contains Rs 10,000 more in expenses than income, you obviously have to cut some spending. But where? Look at 'wants' vs 'needs'. You need a roof over your head, food to eat, and your children's education. But do you need a new car? In reality you want it. But that's not the same thing! Ask yourself these questions, before buying something, especially a major purchase.

• Do I want it or do I need it? 
• Do I need it now? 
• What would happen if I didn't have it?

Armed with this mindset, do you need to spend Rs. 4,000 a month on clothes? Could you realistically get by on Rs. 2,000 by either buying fewer outfits, or shopping at less expensive stores, or taking better advantage of sales?

A lot of small adjustments can add up to a lot of changes that will slowly bring your budget into line. If you are fortunate, your budget might only need some tinkering.

STICKING TO A BUDGET

Creating a budget will help you see where you are spending too much. Sticking with one budget will help you stay out of future financial trouble.

* Resist impulsive shopping.
This is difficult for many people. But consider this, a new cell phone or outfit may seem irresistible when you first see it, but will often seem unnecessary if you give yourself 24 hours to think about it. Keep in mind your previous 'WANTS' versus 'NEEDS' questions.

* Avoid Temptation.
The best way for an alcoholic to keep from "falling off the wagon" is to steer clear of places that serve alcohol. The same is true for people who tend to overspend. Don't put yourself in situations where your purchasing juices will get stirred.

Cut up your credit cards or put them where you can't get to them easily. Certainly it's convenient to pull out a MasterCard or a Visa card and make a small purchase. However, those Rs.300 and Rs.500 acquisitions have a way of adding up. The pain, the anguish and the debt will come when you get your statement.

Studies prove that when we pay in cash for things, we tend to spend less. Use the credit card only for emergencies. Never use them to pay for things you can't afford. What sense does it make to buy a plasma TV for about Rs 75,000 and take six years to pay off at a final cost of Rs.1,35,000? That's nearly double the original cost of the TV!

* Be willing to adjust your lifestyle.
If you are spending more than you are earning and want this trend to stop you only have two choices: either stop spending or start earning more. Earning more is easier said than done in today's tight economy, and it isn't always the best course of action. Even if you are able to boost your income, working extra creates stress and often requires hidden, unexpected expenses. What good is an extra Rs 5000 or even Rs 10,000 a month if you're constantly exhausted, and end up spending more on medical bills or if you rarely have any time to spend with your children?

Learn how to make do with less and still have fun. It's been wisely said, entertainment is expensive but fun is cheap. Consider going for a vacation closer home than for an expensive holiday abroad.

* Consider making major lifestyle changes.
If you are still running behind even after all this tinkering, you may have to make some serious adjustments to your lifestyle. May be owning a new car has been a bigger financial pitfall. Do you really need two new cars and the high payments that come with them? Could you get by with one new car and find a good used car at half the price of the other vehicle?

The point is, if you are serious about controlling your finances - rather than letting them control you; you'll need to look hard at every category of your budget.

Remember the primary rule of budgeting: Expenses should ALWAYS fit within earnings.

A Balanced Budget is a plan that'll allow you to live within your means. That may not be fun most of the time, but it would mean fewer money concerns, and less stress both at work and at home- it will be worth it.

(Adapted from EA Report Brown Bagger)