The recent downturn in the global economy has pushed many people to the edge of financial crisis more than ever before. There isn't a person on the planet who has not suffered at the hands of this recession. We have all heard of the large and small businesses that have been affected but it has also hit home in our local communities where budgets have been cut and programs lost. With all of this, many families have suffered the fallout.

No matter what the scale, we have become accustom to debt and lost the ability to see clearly the consequences of unwise financial decisions and a heavy debt. It’s time to take a good hard look in our own lives at what we can do to get back on the right track and rebuild a solid financial foundation.

Prevention Is the Best Medicine

Everyone needs to create their own Financial Plan. It may sound like a daunting task but in reality it’s all about planning. By setting the time aside to discuss with a professional you can begin to outline your financial goals and plan for unexpected events that are bound to arise throughout the years.

Unfortunately, many people avoid the reality of the unexpected and without an emergency fund, they add to their debt load with more credit to make ends meet. This type of cycle can not only be overwhelming but incredibly difficult to break.

Talking with someone you trust can help you make the changes into redistributing your income in a smarter way. By taking control of how we spend, we are controlling how much we can save and this can be one of the best ways to reduce your family’s level of financial stress.

Creating Your Financial Plan

The first step is to divide all income into four main categories;

Fixed Expenses - These are expenses that do not change, such as rent, mortgage, insurance, and vehicle payments. There is seldom changes with these expenses and are often the lions share of the monthly income.

Variable Expenses - This is how we manage our lives with food, bills, childcare, transportation, repairs, entertainment, etc... The more we stay away from using credit cards in this area, the more successful we will be in the long term.

Savings - This is where we need to build a growing cushion to cover unexpected future needs. It's important to be disciplined here. An easy way to manage this is to choose an amount as a percentage of your income. A good rule of thumb is 10 - 20% of your monthly net income. Once the amount is decide you must be diligent by having the savings withdrawn automatically and into an account that will earn interest without risk.

Debt Repayment - This is as important as your savings in recovering from a heavy debt load. This includes credit cards balances, store credits, outstanding loans, penalties and fees. Never pay just the minimum balance on your credit cards and pay off the highest interest bearing loan first. When you have paid down one debt, add the extra cash that’s now available onto the next high interest loan and continue the pattern until you are completely debt free.

In understanding the basics in creating a financial plan, you are building a solid foundation that will leave you less vulnerable to the uncertainties of life. By implementing a few key strategies and living within your means, you are being proactive and staying in control of your finances. And this is the key to getting out of debt, and staying out.