When people reckon about making a budget they often cringe. It sounds overly complicated or time consuming, and they would rather just avoid it all costs. The truth is, not making a budget for yourself and your family is what should be making you cringe. Your expenses and expenditures can easily get out of control and be left completely unchecked.
When you’re in debt, the best way to start controlling that debt and getting rid of it is to make that budget and do your best to stick with it and keep it as accurate as possible. Making a budget does not have to be a hard endeavor. Follow this guide and you will find yourself paying that debt down in no time.
The first step to making a budget is to make a goal. What are you trying to accomplish and how much money will it take to accomplish it. Once you have that, you have to find the figure that represents your actual monthly income. Not your pre tax salary but the leftover income which you can truly call your own. This is your starting point and what you have to work backwards from to figure everything out. By knowing what you make each month you can track yourself and see if your expenses are less than that, ensuring that you live within your income and not increase your debt as time goes on.
Now it’s time to track your largest, fixed expenses. These are the expenses that you know you have to pay no matter what and shouldn’t be changing from month to month. This includes your rent or mortgage, your insurance, car payment and so on. As a guideline, your monthly rent or mortgage should not represent more than 30% of your total disposable income; if you see it’s more than that, it’s time for a change!
The next step is to break down your other bills and necessities. This includes gas for your car, groceries, utilities, and so forth. These are expenses that can change from month to month and need to be controlled. After allocating a monthly amount for these necessities it is vital to track every buy and make yourself stick with it. Maybe you realize you shop at the glitzy supermarket way too often and could easily save $50 every month by going to the cheaper store and using coupons. That’s money that can be place right into your debt payments.
What you’re left with is your discretionary income. This is the money that is most often lost sight of, but with a budget, can be the key to your salvation from debt. This is the category for entertainment, fun and things that are not necessary. Maybe you go out for dinner and drinks several times a month, have many magazine subscriptions or attend lots of concerts. Either way, these are things you delight in but are not necessary.
A budget is like a diet though; it’s not about complete avoidance and restriction, because that’s a path to guaranteed failure. It’s about limiting these unnecessary items and making them fit within your budget. Again, you must keep track of all of your buys and make the necessary adjustments to your lifestyle. Cutting out a few restaurant dinners or nights on the town per month can go a long way to paying down your debt.
As you can see, making a budget is a way to part out your money for what it is really needed for. You can free up a lot of money that can go towards your debt payments. Your calculations might show that you need to only slightly tweak your habits to start saving money and paying down debt. Or you may find that you need to make wholesale lifestyle changes immediately to save yourself from getting into an even worse financial mess. Either way, a budget gives you the tools you need to track your expenses and be honest with yourself.
While trying to pay down debt, it is the discretionary income that takes the largest hit. But keep your eyes on the prize and focus on your goal. Cutting down on these expenses will save you money not just in the small term, but the long term as well. The quicker you get rid of that debt, the less interest you have on it, and the more money you have for those discretionary buys down the road!