Part 4 (1/2)

Rent .

$1,000.00.

Car Payment .

$250.00.

Credit Cards .

$100.00.

Food .

$500.00.

Utilities .

$250.00.

Other .

$500.00.

Income .

$2,500.00.

Expenses .

$2,600.00.

Cash Flow: $2500.00 $2600.00 = $100.00

Eventually Joe realizes he can't continue to spend more than he earns; he's just digging himself a deeper hole. He decides to make some small changes to cut his costs, including biking to work and using the public library for free entertainment. Together, these save him $100 per month. Now his monthly income and expenses are both $2,500, so his cash flow is zero: He's not saving anything, but he's not taking on any more debt, either.

Joe continues to pay $100 per month to his credit card bill, but the balance never seems to drop. Running the numbers, he realizes that at this rate it'll take him decades to pay off his credit card. In fact, according to the Federal Reserve's credit card repayment calculator (tinyurl.com/CCcalculator), he'll be paying on that debt for 24 years.

Joe decides to increase his cash flow by taking a part-time job at the local mini mart, where he earns an extra $250 per month. He also cancels his cellphone plan, begins cooking more meals at home, and switches to store-brand groceries, all of which saves him $250 per month.

Salary .

$2,500.00.

Rent .