Debt can pull you down – no matter if you are an individual, a giant corporation or even a government. Avoiding debt completely insures that the financial discouragement will be less likely to darken your doors. But even if debt has already been established one key will break you free for life.
Many people talk about budgets, but developing a budget that you can and will follow will provide you that one key you need to break away from debt. No matter where your finances are today, finding a way to bring in more money than goes out will allow you to reduce your debt and even eliminate it altogether.
Developing a Budget
The first step in developing a budget to reduce your debt requires understanding spending. Take a week or two to write down everything that you spend throughout the day – including small purchases like gum to big purchases like rent and groceries.
After you record your spending you will need to evaluate those habits. Write out everything that you spend money on during the week and then total up how much you spend in each category. Now total all of the categories and multiply by four (there are just over four weeks in each month). Finally, add in all of your monthly expenses that might not have been included during the time period you were recording. You should now have a fairly accurate account of how you spend your money.
Now you need to total up all of the money that you make each month. Subtract the amount you spend from the amount that you make. If the spending number is larger than the income number you have just two choices:
Make more money. Get a second job, sell some items that you do not need or love or ask for more hours at work.
Cut spending. Figure up how much extra you need to make to pay off your short term debts (like credit cards). Determine to live without the extras for that many months. Reduce your monthly spending by cutting back on cable, memberships, and other non-essential spending.
The ultimate goal of your budget should be that you spend no more than 50% of your income on necessities (including home, car, utilities and groceries). You need to be saving and investing the next 25% of your income. The last 25% of your income can go towards your wants. Once you get debt under control you will find that you can live well within a balanced budget and probably even better.
Breaking free of debt will give you the ability to do things financially that you never dreamed possible before. Balancing your budget is the best way to make debt freedom a reality in your life.
Written by Peter “Van The VA Man” Brady who is A Veteran’s Administration Home Loan specialist based in Southern California who helps veterans get VA home loans and VA refinance loans.
I really like the idea of putting together a list of all your spending, it makes it easy to track and you can see visually just how much you spend. I think at the end of the day, we all would get really shocked at just how much we spend! Money just flies out way too easy out of our pockets it seems 🙁
Developing a budget is an absolute necessity these days. Hopefully it will help people choose to spend the money they have, and not money they don’t have by relying on credit cards.
Fiscal discipline is something very few of us have. This is why I find such inspiration from lulugal’s blog. She really has got no issues with the money monster, and really keeps a tight rein on things (or the thing, actually, LOL)
Developing a Budget is important key in life, you should know how much amount you save and spend per month.
This is a great way of doing that. I have had problem in the past with budgeting. I was on unemployment for awhile and had to learn how to live off of 1000 a month. It was tough but I got threw it and now I am much better with my money. I have been able to pay down some debt too!
Having been in the financial services/education industry for 20+ years, I’m always looking for great tools for myself and clients. I started using the Money Merge Account from UFirst in Feb 07. We’re currently on track to pay off close to $440K of mortgage debt in 10.2 years and eliminate over $425K of mortgage payments. Didn’t refinance, change my payments or budget. The system is outperforming it’s initial projection of 12.4 years and they’ve upgraded the system twice sense we started at no extra cost. I have been very impressed with the customer coaching and support staff that comes as part of the lifetime system. At a time when financial education and real “solutions” are sorely needed, UFirst has absolutely impressed this financial professional.
Developing a Budget is important key in life, you should know how much amount you save and spend per month.