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With record bankruptcies, mortgage foreclosures and prices skyrocketing, it's more important now than ever before to properly and effectively manage your personal finances.

Statistics show that most people could manage very well on the income they have now if they were able to keep their bills and expenses within their income. Sadly, too many people do not understand how to do this or how to recover once they have overextended themselves.

Personal Money Management is not a one step process. Simply having a budget in place or keeping up with your checking account isn't enough. You need to follow a set process that covers several aspects of money management. Here are the basics of this process:

Set Your Goals

Most people think of setting goals as strictly long-term like retirement and college for the kids. While these are very important goals they are just the beginning. You need to decide what you and your family want your future to be and make all financial decisions with that in mind. This could include things like setting aside money for an annual vacation, replacing your car or home repairs.

Find Out Where You Stand Now

It's absolutely necessary that you know what you have coming in and what you have going out. While a pre-set budget form is best to accomplish this you can do it on a piece of notebook paper. Just right down your bills and expenses in one column and your income in another. Then add them up and subtract your expenses from your income. You will know at a glace if you have money problems.

Develop A Budget You Can Live With

There are literally thousands of budget sample forms available and most are very effective. However, many have as many as 50 categories of expense items you must keep up with to make it work. This requires entirely too much time and effort and are usually abandoned within a few days or weeks. Find a simple budget with very few categories and once set up only requires your attention for a few minutes on payday.

Cut Expense In Every Budget Category You Can

There are thousands of ways to cut your expenses and not change the way you live. As an example, the current trend that is saving a lot of money is to eliminate your land line and use your cell phone as your primary phone. It's a fact that most people could cut their monthly expenses by 10% or more leaving that money to be used for more important purposes. The internet is the best place to get tips that you can use.

Set Up A Debt Repayment Plan

Consumer debt is robbing people of hundreds of dollars each month in interest charges and late and over limit fees. Your goal should be to eliminate all of your debt as soon as possible. There is a simple process called snowballing that will allow you to pay off your debt much earlier and save you possible tens of thousands of dollars in interest charges.

Basically, snowballing is where you add up all of your minimum payments and choose one bill to add extra money to the payment until it is paid in full. Then you take the extra money and the payment you were making on bill 1 and add it to the next bill and so on. The extra money you add doesn't have to be much. Just adding $25 will pay down your bills much faster because the amount of money you have allotted for bills remains the same until all of your bills are paid off.

Know Your Credit

Your credit rating, or credit score, is very important when obtaining a loan. As an example according to Myfico.com, show that for a $300, 000 loan, an individual with a credit score of 760-850 would pay $1745 and an individual with a credit score of 500-579 would pay $2676 per month.

The only way to really know what your credit looks like to lenders is to obtain a copy of your credit report regularly. Residents of the US can obtain a free copy of their credit report from the three credit reporting agencies each year. I urge you to get your free copies by visiting https://www.annualcreditreport.com/cra/index.jsp

Look For More Sources Of Income

If your paycheck doesn't stretch far enough to cover all of your bills and expenses you may need to look for additional sources of money to cover everything. I would employ the expense cutting method mentioned above first but if you still can't make it then more money would help.

Each of us have our own specific talents. Trying to come up with a one size fits all method of generating more income is next to impossible. But, if you take the time to really look at the talents you have you will probably find that you could use them to provide a product or service that people are willing to pay for.

Like I said, these are just the basics. There are other areas of personal finances that are just as important like investing and building your personal wealth, but those are topics that you can concentrate on when you have the basics covered.

If you aren't aware of where you stand financially you may be a victim of what I call "Financial Complacency". That is simply defined as not being willing to put in the time and effort necessary to control all aspects of your personal finances. Normally, this is a result of being confused about your money and how it should work because you were never taught the right way.

Simply by making a concerted effort to properly manage your money will go a long way toward solving any problems you may have. You may be surprised at how easy the solution can be.