In recent times, while speaking to several persons about their money problems, I have detected a growing sense of desperation in their voices. Although many have not yet reached a stage of full-fledged panic, it is obvious that they are very worried about the current financial situation facing Jamaica.

“If I can’t make ends meet now,” a client asked perplexedly, “what’s going to happen to me when the full impact of the tax increases hits?”

I believe that good results can come out of every bad situation. The prevailing economic crisis has forced many of us to recognise that we can no longer be nonchalant or clueless about our financial condition. We have received a monetary wake-up call – it’s now time to take control of our finances!

Over the next three weeks, I will share with you an action plan that will help you to survive in these times, and set yourself on the right track to long-term financial success.

Start with a Spending Plan

The initial step in sorting out your finances is being very clear about what you do with your money. Gone are the days when you could casually say, “I had some money this morning, and now it’s all gone and I don’t know where it went.” Every dollar makes a difference now; you must be very careful in choosing where and what to spend your money on.

The following are directions to preparing a budget that will allow you to effectively plan for your expenses:

1. Identify Your Expenses

Most people are unaware of exactly how much they spend on a daily basis, much less over the course of a year. Being in control of your spending requires you to plan not only for the bills that are due in the current month, but also for those that crop up occasionally throughout the year.

Think about the following costs:

– Recurrent expenses such as utility bills, rent, transportation and food that occur regularly every month;

– Occasional expenses such as school fees, cooking gas, car insurance and property tax, that are certain to come, but don’t come due every month;

– Non-essential expenses such as clothing, personal care and entertainment, for which you should establish spending limits;

– Emergency expenses such as hospital visits, major vehicle repairs and natural disasters, for which you should make allowances in your budget.

2. Record Your Expenses

Download a personal budget at www.financiallysmartonline.com located under the financial tools section and put your expenses in the relevant categories. In order to fill out this budget properly, you will need to express all your expenses in average monthly figures.

– Multiply your daily expenses by 20 or 30 depending on the number of days you purchase the item, to get the monthly cost. For example, if you spend JMD$200 on lunch five days a week, your monthly cost is JMD$200 x 20 – JMD$4,000. If you spend JMD$150 on phone credit every day, your average monthly total is JMD$150 x 30 – JMD$4,500.

– Multiply your weekly expenses by four to arrive at a monthly figure. For example, if you buy JMD$3,000 worth of groceries every week, then the monthly amount is JMD$3,000 x 4 – JMD$12,000.

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– For occasional expenses, estimate the total amount you would spend for the year, and then divide this figure by 12 to get the average monthly cost. For example, if car repairs cost you approximately JMD$30,000 for the year, your monthly figure is JMD$30,000 / 12 – JMD$2,500.

3. Record Your Income

Record your monthly salary figure after any statutory deductions and pension payments have been taken from your pay. If you get paid daily, multiply your earnings by the number of days you work in a month; multiply weekly income amounts by four; fortnightly salaries should be multiplied by two. If your salary is not a set amount each month, put in an estimate of your lowest take-home pay.

Note: If salary deductions for loan payments or savings are taken out of your pay before you receive it, add these amounts back to the budgeted income figure.

4. Balance Your Budget

Subtract your total average expenses from your total monthly income. If you’re lucky enough to have excess income over your spending needs, then this surplus should be channelled into savings. If you really don’t have excess cash on hand, then go back over your budget – you may have forgotten to record some items such as lending money to friends.

However, if your expenses outweigh your income, you have a budget shortfall which must be addressed. Go back over your figures and try to trim non-essential expenses, conserve on utility bills and be more efficient in grocery shopping. If you’re still short after you have cut back as much as possible, the only option to balance your budget is to find practical ways to earn extra income.

Next week we will look at strategies to control your debt in these tough economic times.

Copyright © 2010 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, January 14, 2010

Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl