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Posted on April 24, 2008

As living and energy costs increase and the economy trends towards recession, many consumers resort to using credit for staples like food and gas, driving up balances and compounding the issue of higher food and energy prices – with interest.

More concerning is the fact that more than 30 percent of Americans have little-to-no savings and are living paycheck to paycheck.

It is clear that the current economic environment is leaving many consumers unable to deal with daily, let alone unexpected, expenses. If you are one of these consumers, it may be time to take a good hard look at your family’s budget and commit to making some financial changes. After all, preparing for the unexpected can keep a minor financial setback from becoming a major financial crisis.

Money Management International, the creator of FinancialLiteracyMonth.com, offers the following steps to help increase your financial know how and start you on the path towards smart money management.

1. Track daily expenditures. Carry a pocket size notebook and track every penny you spend for a month or two - from vending machine snacks to lottery tickets. At the end of the month, examine your spending log and determine which areas can be cut back to create surplus. You’ll be surprised to see how much money is being spent on items that could be easily sacrificed.

2. Develop a spending plan. Take a look at all sources of income and develop a monthly spending plan you can commit to. Categorize your expenses and note what percentage of your paycheck is needed to cover each category. Your monthly goal should allow you to end up with a budget surplus--money saved rather than spent. Reevaluate your budget quarterly and make adjustments as needed.

3. Establish priorities. Make a list of all your financial obligations in order of importance. Remember your housing and basic living expenses should be top priority. Consider calling creditors to request due date changes and reduction of your APR and minimum payments. Also, remember to communicate any dramatic changes to the family budget with all members of the family. It’s important that all members of the family understand the financial situation so that they can support change.

4. Remember to pay yourself. It is easier said than done, but saving is one of the most important financial obligations. Consider having a portion of your paycheck automatically deducted into a savings account, your 401(k) or individual retirement account (IRA). This will guarantee that money is saved and invested to secure your financial future.

5. Set financial goals. Decide on short and long-term goals, and develop an action plan to make them happen. Make your goals specific and measurable. For example, if your goal is to save an additional $100.00 a month, determine what specific steps are needed to accomplish that goal. Maybe it is as easy as taking your lunch to work at least four days a week or buying regular coffee instead of gourmet brews. Put the money you save into a savings account so you won’t be tempted to spend it.

“Change may be hard, but the payoff can be priceless,” said Cate Williams, vice president of financial literacy for Money Management International. “Taking these steps will not only improve your financial situation now, but will provide a solid financial foundation to benefit you throughout the rest of your life.”

Visit FinancialLiteracyMonth.com for more helpful steps to achieve financial wellness.