When expenses exceed income, three alternatives are recommended: increase income, reduce expenses, or a combination of the two. To understand where your money is going and to identify ways to cut back, consider tracking your expenses for a month or two.
Three short-term options are also available: sell assets, use savings, or use credit.However, it is important to use these options only for the short term. Longer term use of these options could lead to major financial difficulties and possibly bankruptcy.
Some ways to increase income include holding a garage sale, renting out a room, working a second job or overtime, and adjusting tax withholding using Form W-4 if you typically receive a large refund..
Ideas for reducing food expenses include using coupons, taking advantage of store specials and “buy one get one free” offers, and using farmers’ markets in summer. Other cost-cutting ideas include lowering the thermostat in cold weather (and raising it in warm weather), taking advantage of free tax-preparation services, and sharing baby-sitting and other services with friends.
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