Extreme spending can create financial headaches. When a person cannot get control of their spending, this tends to result in too much consumer debt and little cash savings. In turn, there are no funds to meet the expense of an emergency.

Poor spending habits develop due to various factors. Failing to recognize the value of financial stability plays a huge role. Likewise, keeping up with neighbors and friends in regards to material possessions is another factor. Still, good spending habits can be learned. The first step to developing good spending habits, and outlining a plan of attack, is identifying the problem.

The majority of persons employed have a little disposable income each month. Yet, many constantly cry broke and seek ways to make more money. The obstacle is not always a low salary. To be more precise, an extreme spending habit. Frivolous spending on meals, shopping, and other extras quickly add up. Surprisingly, your entire paycheck is spent before bills are paid.

Creating a spending plan is advantageous for many reasons. Such as, it will help you stay out of debt. Further, spending less allows you to save more money. When an unexpected expense occurs such as a car or home repair, you'll have the extra income and won't have to rely on credit. Plus, a spending plan helps break a whimsical shopping habit.

Adhering to a spending plan takes effort and determination. If poor spending habits are the norm, changing the pattern is difficult. To stay on course, some persons have to resort to extreme measures such as avoiding shopping malls or entertainment. While initially hard, the results are worth the sacrifice. Within a short period of time, you can successfully curb your spending, pay off debts, and create a financial cushion, which is of more value than a pair of designer jeans and weekend excursions.

1. Identify Income: A spending plan cannot be created without first identifying all sources of income. Take a few minutes and gather paycheck stubs, retirement income, alimony income, child support income, or disability income. Compute the monthly totals to find out monthly income. If unable to find records of income, use the past year's tax return. Take the annual income and divide this number by 12. The total provides a rough estimate of your monthly salary.

2. Determine Expenses: Determining income is simple. Breaking down monthly expenditures is more challenging because they tend to vary. To begin, gather statements for ongoing bills such as credit card statements, utility statements, auto loans, mortgages, insurances, etc. Next, determine how much money is spent on transportation, clothing, food, medical, and entertainment. Reference your checkbook, credit card statements, and bank statements for accurate numbers. Subtract average monthly expenses from income.

3. Create a Plan: The goal is to create disposable income, or increase each month's disposable income. Because some persons spend too much money on certain items, this greatly affects their ability to have extra cash.

After determining monthly expenditures, the next step involves cutting back on certain expenses. Some individuals spend a lot of money on eating out, shopping, and entertainment. Ideally, entertainment should consume only 4-6% of your monthly income, and clothing 4-7%. If your percentage of money spent of either category is higher than average, buy less. Mortgage or rent payments should not exceed 33% of your income, transportation 10% (auto loan and fuel), personal debt payments 10%, and food 20%.

4. Keep a Spending Log: The only way to keep an accurate record of spending is to write down each transaction. Each week, create a spending plan. In other words, determine a reasonable amount to be spent throughout the week on fuel, food, and miscellaneous items. Eliminate a few extras. For example, try brown bagging your lunch for an entire week, or skip the morning coffee stop. Each week and month, review your purchases. You'll be surprised by the savings.