Organizing Receipts -- Virtual and Paper

• 1). Gather all paper receipts for every expense you have had during the past year. If you are unable to locate some of the paperwork, then go over your checking account and credit card statements to find that amount.
  
  
• 2). Separate the receipts into groups, such as medical, electricity, cable, auto loan, school loan, etc.
  
  
• 3). Label file folders with the different categories that you have just created when separating the receipts. Make a separate folder for each credit card since each one is a separate account.
  
  
• 4). Follow the same procedure for all virtual receipts. Create a folder, such as "2010 Receipts" in your word processing program and place the various financial files inside this folder.
  
  
• 5). Place a color sticker on folders that contain tax-deductible receipts to make them easy to identify as tax time. You can mark virtual folders by placing an asterisk beside the title. This will remind you to look inside that folder and print the information for your tax accountant.
  
  
• 6). Gather all paper and virtual receipts for your income during the year. Include your salary, dividend payments, profit from sale of stock, interest earned on savings and money market accounts, child support and any other forms of income.
  
  
• 7). Place your pay stubs inside folders created for your different forms of income. Place any brokerage statements inside as well.
  
  

Preparing The Budget

• 1). Add all of your living expenses for the previous twelve months. Going back twelve months will catch seasonal expenses such as summer swimming pool maintenance or winter home heating maintenance and repairs. Include expenses for which you do not have receipts, such as cash donations to fundraisers, Girl Scout cookies, paying a neighbor's son to shovel snow, a child's allowance, washing clothes at the laundromat, babysitting, etc. You may need to estimate how much you have spent.
  
  
• 2). Divide this total by 12 to determine your average monthly expenses.
  
  
• 3). Add your yearly salary and any other income you receive regularly, such as child support. Do not include irregular income like cash gifts for your birthday or profit from the sale of stock, since these are not recurring forms of income.
  
  
• 4). Divide your income by 12 to determine the average monthly amount that you have to work with.
  
  

Making the Budget Functional -- Positive Cash Flow

• 1). Subtract your monthly expenses from your monthly income.
  
  
• 2). Designate any additional income first for an emergency fund of at least two months expenses, and second for savings instruments to meet your life goals that may include a down payment for a house or even early retirement. Always put the emergency fund first before debt repayment since your creditors are not likely to pay for an unexpected car repair or support you through a period of unemployment.
  
  
• 3). Pay down debt with additional cash in the budget. The recommended method is called debt snowballing. Pay as much as possible every month to the debt with the smallest balance. After you have paid this creditor in full, then take that monthly amount and add it to the payment for your second smallest debt. The safety net here is that you will quickly have fewer creditors to pay each month so, if you should have reduced income through illness or job loss, you will not need as much money to meet the minimum payments.
  
  
• 4). Add upcoming major expenses, such as a wedding or replacing an old washing machine, and work them into the budget. This method will enable you to pay cash instead of incurring debt.
  
  

Making the Budget Functional -- Negative Cash Flow

• 1). Identify areas of discretionary spending and calculate the amount of possible spending cuts.
  
  
• 2). Arrange for budget billing on the utility bills to evenly spread the cost of expensive winter heating or an unusually high phone bill throughout the year.
  
  
• 3). Identify ways to lower the amount you pay in every category of your budget. For example:
  
  A. Review your insurance policies with your agent to see if premium adjustments are possible, such as a larger deductible or a credit for driving less than 8,000 miles per year.
  
  B. Lower medical costs by switching to generic medicines and taking advantage of free medical screenings.
  
  C. Learn tactics for thrifty shopping. Groceries are the second largest spending category in the average American budget.
  
  
• 4). Pay your secured creditors first to avoid foreclosure or vehicle repossession.
  
  
• 5). Negotiate a payment plan with your unsecured creditors. Do not skip any payments, even if you can only send $5. If they should take you to court, you can show a good faith pattern of regular monthly payments.
  
  
• 6). Adopt the positive cash flow tips of this functional budget as soon as you are able to do so.