One of the most important things a person in debt needs is a budget. Here’s a guide on how to create a budget that you can feel good about. You might be thinking “Oh but my budget never works the way I plan it!” Same here. I always make budgets. Most of the time, I always have something interrupt my budget. But if you don’t have a budget, you have no guide to where your money is going.
Okay, lets get started.
Step 1: Put away the credit cards.
Your credit cards should not be part of your spending. Paying them off – yes. Adding more purchases onto them – no. Don’t use credit cards as a back up fund. You can not save money and get out of debt if you are adding to your debt.
Step 2: List your expenses.
I mean every little thing. Do you commute? How much do you spend on gas every week? How much do you average out on lunch? How much do you average on a weekend out? Minimum on credit cards?
Anywhere you put your dollars, write it down. You need to be able to account for every dollar you spend.
Step 3: Cut out what you don’t need
One thing I did was cut back on how much I spend on groceries. I do not buy snack items anymore. The only things that really make it into the cart are vegetables, meats, pastas, rice, etc. Things that I can use for dinner. Things that create great leftovers. I cut out anything I would eat just to snack on. We’re going for money efficiency.
Another way to cut back is to downgrade any service that is not at it’s most basic level. Or better yet, cancel the service altogether if you realize that you only use that service once a month or even never. Think about what you really need versus what you have as a “nice to have” and don’t really use. I did this by not playing World of Warcraft anymore and not using Netflix. I simply did not use either service. I have heard of people canceling their cable television to use Netflix. Perhaps that’s something we all can consider.
Step 4: Allocate your money
A trick I started doing and still maintain is to pay bills off in increments. As soon as I get a bill, I will see how far off is it due. If it’s 3 weeks off which often my credit card payments are, I would split the balance into 3 payments, sending in a payment once a week. It does not have to be weekly but if you can break down your bills to more manageable amounts and pay a little at a time, why not? So long as your bills are paid on time, paying a little bit every week does not hurt at all.
In the last step, I talked about cutting back on what you do not need or things you just do not use anymore. Now you need to set a maximum on things you WILL spend money on. For example, I cut back on groceries but I will still spend money on it. However, I decided I will not go over $150 a week on groceries.
Make sure you set up an amount to pay off debt with. This should be a considerable amount of your budget and not just a small portion. Your goal here is to cut back on your living expenses so that you can pay off debt.