I'm assuming you've already decided that a spending plan will help you reduce debt. And you'd be right. This isn't just my opinion, thousands of people have got their debts under control by using a plan of some kind. I'm sure you've heard this old saying, ‘A failure to plan – is a plan to fail.' Well we're not going to fail are we. A plan on how to manage your money is going to give you the very best chance to reduce debt and then to finally get rid of it entirely.



OK, let's get down to the nitty gritty of how exactly you do that by using a spending plan. Well the first thing to do is to identify exactly how much you've got coming in, and how much is going out. This can be a little time consuming, but here's a tip. Go through your bank statements and your check book and make a list of every debt you have, and a debt is something that can be paid off. So separate food, power, clothes and those types of living expenses which aren't debts. So you'll end up with two lists. Debts and living expenses. As you reduce debt you'll be able to wipe them off your list, nice.

OK, make sure you include everything you spend money on. Could be magazines, lunch with the girls, cab fair or regular maintenance expenses at home. So I suggest you go back around 12 months on your statements to see those annual expenses as well.

And just to be sure you haven't missed anything you'll need to bear with me for a moment, and don't be rolling your eyes here. What I want you to do is get a small notebook and for the next 7 days, write down everything you spend. EVERYTHING. And for 7 days after that as well. By writing down where your money goes each day, you'll see quite clearly why you had $50 in your wallet and now only have $10, and most importantly – where did that $40 go?

To make the point as clear as I can I'll share a story about a friend who was wildly keen to reduce debt but was always struggling to do so. She was also forever telling me when we were together that she was sure she had plenty of money in her purse and now had nothing – she was totally bemused by where her money had gone, not on reducing debt anyway. I asked her if she spent much during the day, and she said, no, just the odd coffee, and maybe lunch a couple of times a week.

Turns out the odd visit to Starbucks for coffee and pastry, and a swing by the magazine store was costing her upwards of $70 a week. How to reduce debt? Stay away from Starbucks and magazine stores!! Don't believe me? Check this out. Coffee on the way to work for her and a friend 3 times a week, $20. Coffee, pastry and a magazine for morning tea 2 times a week, $18. Coffee and lunch from Starbucks 3 times a week, $30. Total $68, see how quick it adds up.

That's 3400 tax paid dollars every year she was spending on coffee, pastry and magazines. Was the coffee so bad at her office? Worse still, she had to earn about 4500 pre-tax dollars to buy that coffee, pastry and those magazines. Now she may decide she's happy to do that, but at least she's now making an informed decision. Or she may decide to take that $70 and use it every week to reduce debt. Her decision, drink coffee, eat pastry or reduce debt. As I said, at least now she knows. In order to create your own spending plan, that needs to be your first step.

So go get your statements, your check books and a small notebook and get started on your own reduce debt plan right now. Good Luck.