Good personal finance habits have been around as long as there has been money, yet many people seem to have forgotten them or have never learned. With today's easy credit, low monthly payments, and lack of patience, if you don't have a good handle on your money, your problems are quickly compounded. It has become very easy to go too far into debt resulting in losing your home, property, and bankruptcy. Once you're to this point, it takes several years to recover so it’s best to do something about it now.

The things I'm describing here are not new, nor are they rocket science. Anybody with willpower and some patience can master them and get ahead. You will need to sacrifice a little. You can't have everything today, and probably not tomorrow either. If you can wait for things, you're going to end up much farther ahead than everybody else.

First thing you need to do is figure out what you're spending your money on. You don't need fancy software to do this. It doesn't hurt to have it, but you can do it with a simple pad of paper and a calculator. If you have a spreadsheet program, that works great too. You can also use MS Money, Quicken, or any number of other programs. Either way, the principles are the same. You simply make categories of where your money is going, and then you add up how much you spent last month on each thing. Make a category for your rent or mortgage payment, car payments, insurance, food (eating out), food (groceries), entertainment, gas, utilities (Internet, phone, natural gas, electric, water and sewage, etc), clothes, and any other category that has money flowing to it.

Once you know what you're spending your money on, look at how much money you made last month. Hopefully, the amount you made is equal to or less than what you spent. Otherwise you used credit to pay for some of it. If that's the case, you're going the wrong direction and need to take drastic action immediately.

Now, take a look again at what you spent. What can you get rid of? Some people suggest removing everything that isn't necessary to survive until your debt is gone. If you can do it, this is wonderful advice and will help you get out of debt the quickest. This means cutting out anything that isn't needed to survive. Most people have a hard time with this, but those that are serious about getting ahead do it and end up great on the other side. It's hard to do though, so I'm going to talk about doing things to get closer to that goal.

If you're using credit to offset some of your expenses, you're in a world of trouble. If you make $1000 but spend $1100 a month, you're dying a slow but ever quickening financial death. Stop this now. Do not use your credit cards any more. You need to cut out anything that you can to get to where you're spending less per month than what you make. I've heard all of the excuses. Hell, I've said most of those excuses because I've been there too. My excuse was "but I can't go without diapers". This is true, but there were other things I could have gone without.

Do you really need that 2nd car? You might think you do, but I can tell you from only having 1 car in our family for 6 years that it's possible. There are busses, trains, and people that will give you a ride if you ask them. I know friends that ride their bike to work every day. You have options.
Once you've stopped hemorrhaging money (using credit to offset spending too much), the next step is to get all of your payments current. You need to do this to avoid getting dinged those late fees and get the creditors off your back. I know from experience this is harder than it sounds, but you need to make a serious effort to get current on everything. Don't run from your problems. Face them head on and get them taken care of. If you're drastically late on stuff then you need to take drastic measures to get current. Sell your 2nd car; sell everything you have of value, get a 2nd or 3rd job. Same with your spouse. Take another look at what you’re spending your money on. Cut out everything you can while still staying alive. That includes all eating out, your cable, your internet (unless your job is dependant on it), your phone... everything. You'll get it back later, but right now, you need to get back on your feet financially or you're going to have it all taken away from you anyway.

Once you're current, the next step is to get a small amount of savings put aside for emergencies. Usually, the credit card gets used for 'emergencies' because you don't have the money to pay for the emergency. Think about it... you used your credit card last time because you didn't have enough money and you really needed that thing. Right? Maybe a tire blew out on your car, or you needed those diapers, but whatever it was, it was needed. (I hope you didn't just blow money on your credit card - if so, you need a lot more help). Save up a $1000 and put it somewhere safe for emergencies. Real ones... and the buy one get half off shoe sale doesn't count. If you have this money somewhere, then you'll be able to use it instead of the credit card when that emergency does hit. Once you use it, make sure you save up as quickly as you can to get your $1000 back.

Once the emergency fund has been established, the next step is to start paying off your debt.  I'll get into that in more detail later on.