NEW BERLIN, Ill. (TheStreet) -- You've heard all the commercials urging you to consolidate debt into "one low payment." The concept, which promises to free up some cash so it is easier to live paycheck to paycheck, makes logical sense. The reason this usually doesn't work is that it doesn't address the real problem: We haven't learned to spend within our income.

What we need is a method to manage and organize our money so we make conscious decisions about how we spend it.

It's not hard to manage and organize money so we make conscious decisions about how we spend it. But it can take some time.

To get started, try the following:


Get a small notepad to put in your pocket or purse and write down each time you spend money and what it was spent on. This will help you track what you did with that extra cash you pull out of the ATM.


At the end of the month, consolidate your spending information into categories that are meaningful to you.


Organize the categories in the following groups:

  • Monthly required spending
  • Monthly discretionary spending
  • Periodic required spending
  • Periodic discretionary spending


Review your spending and establish funding amounts for your discretionary categories.


Label separate envelopes with each of the discretionary categories and fill them with the appropriate amounts of cash. Some envelopes will accumulate cash month to month. For instance, your clothing envelope will gradually build up until you actually make that trip to the mall.


Only use cash from the envelopes to pay for discretionary items. This will help you be less impulsive when you spend money.


When you see the need to borrow from one envelope to pay for another category, make a note right on the envelope.


At the end of the month, make adjustments to your spending plan and envelope amounts.

Debt reduction and savings should be part of your monthly expense planning as well -- and as you free up cash by concentrating on reducing or eliminating some of your discretionary spending, you can use that extra cash to accelerate one or both items.

This process may seem time-consuming, but outside of keeping a notepad and using the envelopes, the process of establishing a funding plan and making adjustment should only take one evening and eventually only an hour or so a month. If you are married, you will want to both commit to this as you get started, although you might want to have someone other than your spouse be your "accountability partner" in following the process.

By following this process you'll have your spending habits well in hand in no time, which is the root of the debt issue. As you get a handle on your finances, you'll soon be in the position to put your debts to rest -- and with this discipline you've developed, a debt consolidation loan might work wonders.

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Jim Blankenship, CFP, EA, principal of

Blankenship Financial Planning

, based in New Berlin, Ill., is a NAPFA-Registered financial adviser. He writes frequently on the topics of retirement plans, Social Security and tax matters at his blog

Getting Your Financial Ducks In A Row