Critical Concept

• Write this down: spend less than you earn. This is the essential key to avoiding financial trouble. If you spend thousands more than you earn or just pennies more than you earn, it will catch up to you.
  
  

Analyze This

• Figure it out
  
  The first step is to keep track of what you're spending. Find a little notebook and write down every single penny you spend for a month. It gets old fast, but do it, because a record of your expenses for a whole month will be a pretty complete picture of your average spending habits. At the end of the month, get a sheet of paper and analyze your expenditures. Write headings for each type of expense, such as Rent, Groceries, Espresso and Gas. You get the idea. List everything you spent under each category, with the amounts. This will show you where your huge costs are, and where money is leaking away needlessly. This is valuable information. Had you any idea you were spending $25 a week on lattes? Once you know where the leaks are, you can plug them.
  
  

Plan Ahead

• Once you are paying attention to your spending, you will likely find yourself spending less. Now it's time to plan for future expenses, so that coming up with the car payment isn't a problem every time. Make a list of all your monthly bills, and those that are due less often, like property tax or homeowner's insurance. Here's the critical step: figure out how much you need to set aside from each paycheck in order to pay these bills when they're due. For example: if you get paid twice a month, half the car payment must be set aside from each paycheck.
  
  

Envelopes or Spreadsheet

• No credit cards
  
  You can literally set aside the cash in the time-honored envelope system, wherein you have an envelope labeled with each expense category, and you distribute your paycheck into the envelopes as required. You spend from the envelopes, too, and when the money in one envelope is gone, you're done spending in that category, unless you can spare some out of another envelope. No credit cards allowed.
  
  Or use spreadsheets, on paper or on your computer, as virtual envelopes. This takes a bit more managing, but works better than envelopes if you don't turn your paycheck into actual cash, or if you use online bill paying. Choose a free budget plan (from the many available online) that will walk you through how to use this system.
  
  

Pay Off Debt

• Debt free!
  
  Use your envelopes or spreadsheet program to pay off your debts as soon as possible. List everything you owe to anyone, including the interest rates. Stick all extra money generated by cutting your expenses into a debt-payoff category and use it to get out from under. Always pay more than the minimum payment. Some say to pay off the account with the highest interest rate first, some say to pay off the smallest balance first. Whichever you choose, make getting debt-free your No. 1 goal until you are free and clear.