Guest Author - Rhonda Cliett

It is difficult, if not impossible, to set goals for your financial future if you have no clue about your present financial situation. Unfortunately, most people truly believe they fully understand their current financial status. The average person sits down once or twice a month to pay bills and instead of looking at the total balance on the bill they look at the minimum amount needed to get by for that month. So, we pay the minimum required for that month and end up with some money left over and we feel we have succeeded. Unfortunately, the overall debt continues to rise, but we are simply oblivious. After all, we just made it safely to the next month. Didn’t we?

You simply must roll up your sleeves and take inventory of your finances. The following is a step-by-step guide for accomplishing this task. However, I must warn you that it won’t be easy and it could even be quite stressful and painful. Unfortunately, it is a necessary evil in order to eventually place yourself on solid financial ground.

Step 1 – The first step is to make a list of what you have spent in the past 12 months. Go through your checkbook register, your credit card receipts/statements, and any other receipts you can find. If you are the type of person that primarily pays with cash then you will find this step somewhat difficult unless you happen to have kept all of your receipts.

Step 2 – Categorize the historical 12-month spending list that you just created. Use this form to help create your categorized list: Historical 12-month Spending. (You will need the free Adobe PDF reader to view and print this form).

Step 3 – Seriously evaluate your newly created list. What were necessary expenditures? What were true luxuries? Be honest with yourself.

Step 4 - Create a debt reduction plan.

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