The first step to balancing your budget is to set your priorities. By Laura Cohn, Associate Editor September 22, 2009 WHERE YOU ARE: Worried about where the money goes, especially if you’ve experienced a layoff or pay cut. WHERE YOU WANT TO BE: Breathing easier about your expenses so you can build up emergency reserves and not be concerned about unexpected bills. HOW TO GET THERE: The recession has given Joanna and Adam Abrahams a crash course in household budgeting. The Silver Spring, Md., couple had to take a hard look at their spending when Adam, 39, lost his job as a lawyer for a title-insurance firm in late 2008. Although Joanna, 38, kept her job as an attorney for the Office of Personnel Management, they had to rethink their finances so they could afford child care for their two daughters plus make payments on their mortgage, their law-school loans and their credit-card debt. To save $2,750 a month, the Abrahamses decided to pull their girls, Eliana, 3, and Kayla, 18 months, out of day care and have Adam stay home while he finished his advanced degree in tax law at Georgetown University Law Center. Child-care costs went up in the summer, when Adam took an unpaid internship at the IRS in hopes that it would lead to a full-time job. Belt-tightening moves, such as signing up for a Costco executive membership -- which cut the family’s grocery bill by a third and provides 2% a year in merchandise rewards -- help fill the gap. They also took advantage of a 0% interest credit-card offer and transferred $14,000 in credit-card debt. “We have a different attitude about money,” Joanna says. “Now, every dollar counts.” Advertisement The Abrahamses’ steps to prioritize their bills, keep their spending in check and invest in the future provide a lesson in financial triage that would make any budget doctor proud. And it’s worth the effort regardless of your financial situation. “What gets measured gets controlled,” says Susan Moore, a financial planner in Watertown, Mass.See where you stand. To start, sign up at a free online budgeting site, such as Mint.com or Wesabe.com. A new option is LendingTree.com’s “MoneyRight” tool, which, along with tracking what you spend, provides a free estimate of your credit score. MoneyRight also estimates how many days you could go without a paycheck -- a useful feature in an economy rife with job insecurity. If you’re able, set up an emergency fund to cover at least six months’ worth of expenses (if that’s daunting, start with a smaller goal). Put the money in an interest-bearing savings account at an online bank, such as ING Direct, which recently paid 1.4% -- way more than most brick-and-mortar banks. Pay these bills first. Once you have a handle on your money, prioritize your bills. Most important is your health insurance, because a medical emergency is the last thing you need. Next on the list is your mortgage. With interest rates low, you may save cash if you can refinance, particularly if you’ll be in the house long enough to recoup the closing costs. Check rates on Bankrate.com and call your current lender. Recently, the average rate on a 30-year fixed-rate loan was 5.2%, well below the average rate of 6.5% a year ago, according to Freddie Mac. Credit unions and community banks tend to offer better deals than the big players. Advertisement Get rid of your highest-interest-rate debt first. Paying down your credit-card balances not only will improve your credit score but also will allow you to put your money to work elsewhere. Andrew Brunnock, a senior operations manager at Thomson Reuters in Boston, is following that line of thinking. Brunnock, 34, is paying off his credit-card debt by temporarily lowering his contributions to his 401(k) from 10% to 4%. He still gets his company match, and he plans to raise his contributions once he gets his debt under control. “I plan to do it for six months and then reassess where I am,” he says. Perform triage. It’s never a good idea to skip paying a bill, but you may be able to hold off some creditors temporarily. Bruce McClary, a counselor at ClearPoint Credit Counseling Solutions, suggests asking health-care providers to accept low monthly payments on an outstanding bill. You will still receive medical care, and you’ll avoid having the debt sent to a collection agency (see the box on the facing page for more ways to save). If you miss payments on your credit cards, issuers usually make you pay dearly. But even they are taking pity on strapped borrowers, offering breaks on rates. For details, see www.helpwithmycredit.org. If, despite all your efforts, you’re in danger of missing payments, see a credit counselor. You can find one through the National Foundation for Credit Counseling. The first session should be free -- or cost no more than $15. Put More Money in Your Pocket When your budget is out of balance, take a look at these categories: Advertisement Cable bill: Cable providers are scrambling for customers, so ask about getting a better deal on TV and Internet service. Land line: Pull the plug and use your cell phone. That will save you $40 a month, based on the average phone bill. School loans: If you have federal student loans, see if you qualify for income-based repayment, a new plan. Life insurance: Premiums dropped over the past decade, but they’re starting to rise. If you haven’t shopped for a policy in a while, try to find a lower-cost one at AccuQuote.com.