We have all either heard or said the comment, “There is too much month left at the end of the money.”

We want to budget like conscientious and mature adults, but often we go out of our budget bounds and spend money we don’t have. Credit makes it too easy to be in perpetual debt.

Most people really don’t have an actual budget, and to be perfectly frank, there is no need to get into minute details preparing one. On the other hand, to have no plan at all is a recipe for an uncertain future. I have advised hundreds of people on saving and spending money. The information in this first module will not detail what to invest your savings in. Those steps will be in the next module.

This first module is focused on paying down debt. It does not mean you should not be saving money while paying off debt because otherwise, you may be one of the many people who live paycheck to paycheck without saving a dime. You need to be able to save all you can while time is on your side, but also balance that with paying off bills.

As far as budgeting money, what I hear most often is that people want to manage their debt and ultimately be debt free. Debt free means that you have no mortgage, car payments, or other loans, and that all your bills and credit cards are paid off each month in full. It is a very lofty goal, but it is attainable if you aren’t greed motivated.

First, I tell people to STOP spending more money than you make. We are not the Federal Government and we cannot keep feeding VISA and MasterCard. Get out a pen and paper and list your needs every month. Then list your wants separately. Until the needs are met each month, the wants are just a wish list.

The needs can include the following bills:

Donation to your church or charity*
House payment or rent
Groceries
Utilities
Taxes
Health insurance or a health savings account (HSA)
Medical bills
Gasoline
Car payment, insurance, and maintenance
Misc. loan payment
Tuition for self or child
Credit card payments
Stay-Cay vacation

Wants can include:

New car
Fancy Vacation
Vacation property or home
New clothes
Bucket list event or item
Going out to dinner more than occasionally
Major purchase such as a hot tub
Memberships (gym, country club, etc.)

Both of these lists are either incomplete or will need to be personalized for each case. All you need to do is list the amount that you must spend on each of the Needs each month and then look at what you have left over. From that leftover money, at least 25 percent should be peeled away and put in savings where it cannot be touched except for emergencies. The rest can be used for those things that happen every month, such as wedding presents or home maintenance items. If there is no money leftover after the needs are met, then you need to face the fact that you have a serious problem.

The first item on the needs list is donations to your church or charity. This is not a mandatory need, but it has been very obvious to me that those who give back to God somehow have their needs met for the rest of the month. It’s all about faith. I won’t get into that here. It’s a topic for another time.

Most of us need a vehicle as a means of transportation. Buy a used car or an efficient new one. Save the sports car or big off-road vehicle desires for a time when you can afford all of your payments. And don’t lease a car unless you don’t drive very much. Those added miles really can cost you on a lease. A lease is never paid for, because at the end, you need to get another car, and it will cost more. Buying a like-new vehicle with a good warranty is the best choice because of the cost savings.

Getting out of Debt

Step one is to consolidate as much debt as possible. Negotiate with your credit card companies to lower the rates. Take one or two cards with the lowest rate and transfer all remaining balances onto them from other cards. Tear up the cards that you have consolidated to others. Destroy all department store credit cards except one. Make sure it is only usable in that store and is not a VISA or M/C. Kohl’s or Home Depot are good examples of store cards that you can only use in those stores or on their online sites. Keep the department store card balance at zero by not buying more than you can pay off on the next statement.

Step two is to pay off whatever item or card carries the highest interest. If that’s your car, start making extra payments toward principal even if it’s only an extra $10. If it’s a credit card, pay some online with EVERY PAYCHECK. Don’t just wait for the bill. The days in between add interest to your balance. And never just pay the minimum payment unless that’s all you can do. If all you can pay is a minimum payment, and your credit card debt is over $10,000, you may need a credit counselor to help you with a credit loan. The loan pays off all your cards and gives you one payment a month. Once your only balance card is paid off, make it a point to never put more money on it than you can pay off in the next month. Sometimes this is not possible, but if it starts to happen every month, you will soon be right back in debt owed to credit cards.

Step three is to pay extra money toward all miscellaneous loans, like your car. Student loans should be paid off as quickly as possible since they are very front loaded with interest. Even though they average 6 percent interest, you technically end up paying over 20 percent if you pay only the minimum amount required. Treat student loans like a debt you want to pay off quickly and make extra payments between the due dates online.

Step four is to pay down your mortgage. NOTE! This is step FOUR, not one, two, or three. Don’t try to hurry and pay off a mortgage at the expense of higher interest shorter term debt that is not a tax write-off. Pay only what you owe on your home until your cars and cards and other loans are completely paid off. Don’t borrow against the equity in your home to pay down your debt. Equity loans should be for home improvements, not college, or vacations, or paying off shorter-term debt. However, if you can get a home equity loan at a lower rate than your current mortgage rate, and you owe less than $50,000 on your mortgage, it might make sense to take the loan and use it to pay off your mortgage. There should be no fees to do this and it should pay down faster than your mortgage would have.

Don’t live for today and just forget that tomorrow will be here. It will, and you don’t want to be caught having to sell everything and end up in a dilapidated high rise one room apartment. Also, never depend on an inheritance. If your relative needs health care or has high medical costs near the end of his or her life, it could deplete all savings in a short time period. Treat any potential inheritances like a bonus that you may never see.

The next module will be on how and where to save.