by Lisa Web

Created on: January 19, 2009

Why a sound household budget is key to debt reduction.

What is the purpose of a budget? To keep your spending in line. When you have a budget, you list exactly what you are willing to pay per month for certain expenses. The budget makes you look at what you are spending, and helps you to see where you can make adjustments to spend less. Budgets are a learning tool, ever changing as your life and prices change, but also a review mechanism.

You do not sit down and make a budget then tuck it neatly away in a drawer. If you do, it will not work for you. Make a budget, and keep it handy. Look at it every time you make a purchase or pay a bill. Keep track of what you spend, what you spent it for, and when. This will help you gauge where you are and why.

A budget is a tool that will help with debt reduction, and really is the key to reducing your debt. First, make a budget for yourself. Sit down with a list of all bills, expenses, and wants. This includes housing, utilities, car and car care, personal items, groceries, and even gifts or that upcoming vacation or wedding. Do not forget to add items for each family member, such as baby care, diapers, clothing, schooling, or school supplies. The more detailed you can get, the easier it will be to cut corners where you can.

Now that you have a list of your bills, start with those that are the same each month, like rent for example. If you pay $1000.00 per month, you have to add that into your budget. This will not change this year, unless you move. Same with car payments, insurance, and some utilities. Start with these items on your budget. Next add in things that are "needs" such as food and transportation, car care, clothing, child care, or medical expenses. You may have an idea what you spend, but it will be easiest to look at what you spent last year, if possible, in total and make a budget from there. These are items that you can control the cost of, but only to a certain extent. You need food, no matter the cost. However, you can start using coupons or shopping generic brands if needed to cut the cost.

Now add in any old or existing debt to your budget. Make sure you list the total amount that you owe. Last on your budget will be the vacation or "want" items. You do want to save for these, but other things do need to be taken care of first.

Here comes the fun part. Figure out your total monthly bring home pay for you and anyone else contributing to your household money. Say you bring home $2000.00 per month. This is what

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