Three ways to balance your income and your expenses

You've been tracking your spending and what you once suspected is now backed by cold, hard fact:

You shell out more than you bring in.

So what do you do next? Well, the hard truth is that you have only three options when expenses exceed income.

The best option: Spend less
I can hear you now: "Gee thanks, CJ, why didn't I think of that?" And I'm sure you did think of it, but let's take it to the next level: "Spend less on what?"

First, start small. Evaluate every item you purchase and bill you pay for ways to cut back. You'll likely be surprised at what you'll find, and at how far you can go.

For example, I used to pat myself on the back for making my morning coffee at home instead of buying it. But I also was paying $11 for two pounds of Dunkin' Donuts coffee grounds (on sale, even!). When I bought a $2 can of Folgers (also on sale) I found that, to my unsophisticated palatte at least, it tasted no different. Over the course of a year, Folgers and Maxwell House have probably saved my family $50. Sounds small, but when applied over lots of different purchases, it quickly adds up.

Next, think bigger. Are your monthly transportation expenses (car payment, gas, maintenance) more than 15% of your household net income? Do your credit card payments exceed 10%? Are your housing costs (mortgage, taxes, electric, phone, cable TV) more than 40%?

If so, you're likely living beyond your means. To get on track, you may need to take radical steps, like moving to a less expensive home or selling your car. In the short run, such steps are difficult and emotionally painful. In the long run, though, they'll pay off in more peace of mind and less stress.

A good option: Sell stuff
Yard sales, consignment shops, ebay , and craigslist. There is no shortage of marketplaces to convert the kitchen table and chairs stored in your basement or the clothes cluttering up your closet into cash, which can go to eliminating those pesky monthly credit card payments.

You probably walk by something you own everyday that you or your family don't use or need anymore. Make a point to go through every room in your house every month or so with the specific purpose of finding items you can sell. M and I just recently received $100 from our consignment dealer for clothes our kids never wore and toys they never played with.

A costly option: Make more
I've listed this option last for a reason: It's usually first in people's minds.

The fact is, earning more doesn't solve overspending. When you bring in more, the tendency is to spend more--often resulting in more financial trouble, not less.

Plus, consider the costs. A higher income may require working longer hours at your current job, or in a second job. Time away from things you enjoy, or your personal and family relationships, is a steep price to pay for not being a little more disciplined in managing your money.

That said, it doesn't hurt to find out if you are making less than you are worth, an easy task at a website like www.salary.com. It pays to invest time in your education or job training to increase your income-earning skills. And if you can turn a pleasurable hobby into a money-making venture, all the better. But weigh the costs and benefits before you make a change.

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