How we are getting out of debt: Part 1

The first step in reigning in our debt and overspending was to really look at where our money was going. Of course, we knew the big items that were a fixed amount every month: our mortgage, our electricity, our phone bill, etc. It was just everything else that we thought we knew how much we were spending but not really. Here is what we did and what you and your family should do first. This is a little scary but it is a necessary first step.

First, gather up your last 3 months of bank statements and if you have been using credit cards gather up the last 3 months statements for each of those. (If your income or spending habits have been unusual for the past 3 months you will need 6 months worth of statements). Now, if you can't find those statements most credit card statements are available on their website and you can get copies of bank statements at your local branch. This is such an important step, please don't wing it with just the past month's statements!

Second, get a big stack of notebook paper or a legal pad and label the tops of each page with a category of spending:

tithe/charity
Mortgage/rent
House repairs/ purchases for the home
Utilities: phone, cell phones, cable, electricity, gas, Internet, etc.
Groceries
Eating out
Car Payments:
Gas for cars
Maintenance/ car repairs:
Car insurance
clothing for kids
clothing for adults
dry cleaners
Insurances that are not payroll deducted
Property taxes not escrowed
doctor bills/co-pays/ prescriptions
Child care
Hair cuts, etc.
School tuition, etc.
School supplies, etc for kids
pest control
carpet cleanings
hobbies
travel
gifts/ parties
entertainment (video rentals, movies theatre, etc.)
credit card bills
student loans
other loans
bank fees
misc. (anything else you bought or paid for but doesn't seem to have or need its own category)
misc. (cash: these are ATM withdrawls or checks written but you don't know why)

Third, go through each of your statements line by line as put the amounts for each transaction under the appropriate category. Mark them off the statement as you go because there are a lot of items you are dealing with here.

Fourth, now that you have all of the categories with their lists, add up the total amount for each category. Yes, the misc. category certainly is probably huge! But it is okay. We are just learning where our money is going or (learning that we don't know where it is going)

Fifth, divide the total amounts for each category by the number of months of statements you have been looking at. For example, if your eating out total is $690 and you have looks at the past 3 months statements do this math: $690 divided by 3= $230. This is the average amount you have spent for each category each month.

Sixth, please remain calm. Yes, the numbers may look insane! Yes, I know that you have spent more than you ever dreamed possible. It is going to be okay! This is only part 1. Now the last thing you must do is add up the amounts for all of your spending! That is take all the total category amounts and add them together. You will get a very big number.

Finally, compare the total amount you have spent over these months with the amount of income you brought in during the same months. You should know how much you made but you can look at your total amount of deposits if necessary.

Now, is your outgo the same as your income? Or is what you spent way more than what you brought home? Or did you spend less than you made and have put money into savings and investments?

If you were like us, our outgo was far more than income and that's where the credit card debt was coming from. Or if your outgo was more than income and you don't have credit card debt, then you aren't possibly saving money for your future or a rainy day.

Now, make sure you show your husband/wife/ and perhaps grown up children (if they are still part of our household) what has been happening to your money. You are in this together as a family and together you can make it better!

Look for my next post of "how we are getting out of debt: Part 2" coming soon. I would love to receive a short comment on if you have or will be doing this Part 1. A simple yes or no would be great! I want to help you and inspire you through our story.