Understanding Debt: What are your finances and income?

Understanding Your Finances and Income

In order to become debt free, you must get a solid understanding of your current finances and income. This sounds simple, but without having a firm grip on your income you can't properly plan your finances.

Start by making a list of your income(s) and any assets you have:

List assets including car, home equity, cash, savings, stocks, etc.

List all your income sources by how much you take in after taxes each month. Be sure to include tips, bonuses, interest income, etc. Only include a bonus if you are 100% sure you will get one and be sure to include a dollar figure that is on the low side.

Now add up all your monthly income (again after taxes). This will give you what money you have to work with in the later portions of this discussion.

If you included bonuses, divide that income by 12 and include it in your overall monthy income. BUT you should only do this if you do not already have that money spent. For example, if you always count on a Christmas bonus to pay for Christmas presents you may want to keep this out of your overall income. Keep in mind that to become debt free you will have to make some hard choices. This may mean using a bonus or a tax refund to pay off a high interest credit card rather than to go on a vacation. Once you have your monthly income and assets figured. Write them down in a spreadsheet or use our Debt Management Software Tool to keep a record of these financial numbers. You should adjust this number and keep it up to date as your personal finances change.