The best way to deal with credit problems is to develop good habits before problems start. As a first step, you need to organize your finances and keep a budget. Even if credit difficulties are already a reality, a budget helps you get out of debt and maintain good credit afterwards.

A budget helps you organize your spending. It tells you what money comes in, what money goes out and where the money goes. Creating a budget can also show you where some changes might be needed. It will help identify expenses that aren't as important to you so you can free up money for those that are.

Creating a budget isn't difficult. You just need to spend some time organizing and planning. Once it's set up, a budget is easy to maintain. Follow the steps below to help with your budget planning.

Step 1: Set your goals

First, identify your goals-a new home, an early retirement, even an education. Ask yourself: What's important to me? What do I need? What do I want? If you're married, you and your spouse should discuss your answers and decide what your shared goals will be. Once you know what you want, you can begin to budget accordingly. Group your financial goals into three areas: short-term, mid-term and long-term financial goals.

• Short-term goals: These are goals that you'll achieve in the next year or so. They may include paying off an AED 3,000 credit card debt, purchasing a new television or paying for a vacation.
• Mid-term goals: These are goals that you want to achieve in the next 2 - 5 years. For example, you may want to save for a down payment on a house or for new furniture.
• Long-term goals: These are goals that take more than 5 years to reach. Retirement savings and college expenses are common examples.

Step 2: Gather information

Pull together the records of all of your household income and expenses. Be thorough and honest when estimating any expenses. Your budget should be an accurate picture, not a "best case scenario". Gather the following information:

• Paycheck stubs
• Checkbook registers
• Credit card statements
• Payment information for major purchases, such as car loans and credit lines
• Financial statements from banks and investment firms

Step 3: Find out where you stand

After you've collected all of the information, you'll use it to figure out what your spending habits are right now. This will help you see the relationship between your income and expenses. Don't worry if you use estimates for your first budget calculation. It may take a few months to find out exactly where you stand, but the first time should give you a good idea of what you're spending and where you're spending it.

You should organize your information into three sections:

• What you earn: Add your income from various sources, including "take-home pay", commissions or bonuses, alimony, child support, retirement benefits, disability, interest, dividends, etc.
• What you spend: Add your fixed and variable expenses. Fixed expenses are those that don't change every month and usually cannot be eliminated, such as rent, mortgage, insurance, loan payments, retirement savings, etc.. Variable expenses are those that change and could be reduced or eliminated, such as cable television, groceries, gas, telephone, etc.,
• The bottom line: Subtract total expenses from total income. The amount left over is called "discretionary income." This is the money you can use for emergencies and meeting budget goals.

Step 4: Check your bottom line

Your bottom line is the difference between what you earn and what you spend. It's a clear way to know if you're spending too much. If the figure is positive, consider increasing the amount you pay toward debt or adding more to your savings. If the figure is negative, you are spending more than you earn and probably financing the deficit with credit. If you're spending more than 15%-20% of take-home pay on repaying debts and credit cards, you could be in a danger zone. If your bottom line is negative, you need to examine each variable expense and decide how to bring your spending under control.

Step 5: Keep track of expenses

After you do your first budget calculation, start keeping a monthly expense record. Even if your bottom line is positive, it's still important to learn everything you can about how you spend your money. Carry a small notebook everywhere and record all purchases and withdrawals. You'll be amazed at what you learn about your spending habits. For example, many people find that they spend hundreds or even thousands of dirhams each year on coffee, snacks, magazines and soda. People don't typically overspend in areas like dental care or groceries. They get into trouble with non-essentials-the things they could easily do without. The goal of tracking expenses is to understand where you're spending your money.