Getting into debt is often the result of bad habits. To get out of debt then requires replacing those bad habits with good ones. One of the most basic money habits you will need to develop is doing a BUDGET!
Why make a budget and what does it have to do with getting out of debt? Having a budget will help you regain control of your finances on your terms.
Contrary to what most people think it is not that hard to create a budget and even if you’re not one to stick to a budget I want you to create one and see what happens. JUST THE PROCESS OF CREATING THE BUDGET WILL HELP YOU SEE YOUR FINANCIAL PICTURE! It takes time, especially the first few times, but like anything else it gets easier with practice. It’s also exciting once you see what a difference having a budget makes. So let’s get started with some steps:
Step 1: Track your Expenses and Spending
The first step requires a bit of work, but it is well worth it. You need to gather together information that shows how much you spend (Yikes that can be really scary!). Do this for a full month. Gather bank statements, receipts, your checkbook register and bill stubs. You will also be tracking your impulse purchases. Carry a small notebook so you can write down everything you spend. More than anything, you need to have an accurate accounting of how much money is going out currently.
This is the step that people often either get a reality check or just go into denial all together. Hopefully you get a reality check and do not stop there and think, “I will just stop buying lunch everyday “. That’s a good idea but it’s vital that you follow through with a full budget!
STEP 2: Track Your Income
In this second step, you need to track any money coming in. Be sure to include employment related income and bonuses, dividends, earned interest, or any other money coming in.
STEP 3: Do the Math
Now all you have to do is add up your expenses and subtract that number from your total income. This step can be a real eye-opener.
For most people it can be scary to realize that they may be losing money every month. The goal of a budget is to make sure you don’t actually spend more than you earn.
STEP 4: Put Together your Budget
After completing your research it’s time to put your budget together. Throughout the process of getting out of debt you’ll be using your budget to reveal where you may have extra money to put towards your debt, while making sure you are not just getting into more debt.
Creating a budget is easy, list your total income for the month and start allocating expenses. You need to categorize and label your expenses – this is how you know where the money goes. If you’re computer savvy, use your favorite spreadsheet program to record all your numbers. If not, a pencil and notebook will also suitably do the trick. There are also MANY online programs that can help you budget as well! Mint.com is a popular one and also you may have online banking which most of the time has features to categorize your spending and is usually FREE!
Most often people in debt have more expenses than income. The budget helps you see where the money is going and makes it easier to find areas that can be trimmed.
Once you’re successfully on a budget, you’ll now find that you have more control over your money because you will know where it goes.
After covering some of the basics and getting your expenditures under control it is time to start paying down your debt! We will get more into that in a future post. So what are your thoughts?
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I love the whole concept of a budget but can never seem to make one my husband will agree to. Any tips on how to talk your partner into accepting a budget?
Hi Brandy! I know what you mean, its hard to get someone else on board but you have to sit down and discuss it. Nagging won’t work (not that you are doing that
). Men usually are competitive so you could try and do it as a challenge or something fun at first. Have you both track your spending for a week seperately AT FIRST and then add up how much you both spent then see who can save the most money the next week etc. That will work for the “spending” part. The bills etc, maybe you can put together and show him what you both are paying monthly versus what income in coming in and that will be a visual for him to see WHY you need to Budget. Sometimes just seeing a visual of your spending will get someone on board! Hope this helps!
I personally left the finances up to my husband. I know what is going on, but he does a very good job of keeping everything on track.
I’m planning to get through the 13 weeks of Dave Ramsey’s Financial Peace University, this year. (again)
I need constant motivation/inspiration to stay focused and proactive, when it comes to my finances. I’m a single mother so there’s no “real” accountability. It’s too easy to cheat!!
making the budget is always the hard part for me. I just need to sit down and do it! Thankfully though, we’ve paid off the majority of our debt, and just have student loans and our mortgage left. It really is a freeing feeling.
Very good advice! Sometimes it’s easier just to “ignore” the problem of debt, but that will only make it worse. By taking the simple steps you’ve outlined, you can get a handle on where you are and what you need to do!
I would think for some maybe eliminating things one at a time….and put the money you would have spent on say coffee out into a jar. Watch how quickly that jar becomes full and could be used for something else!
I should forward this to my spendthrift of a husband. He is a Leo, just as my sister, they both love the motto “money is meant to be spent” lol
Great tips! We have a budget put together, but I still need to try the envelope system sometime to better make sure we are on track with it! Unfortunately, thus far it has been too difficult to part with my debit card – especially because I get cash back at the end of the month for running it as credit.
thanks for the budget tips I am def going to sign up for the newsletter!!
Budgeting properly has been a huge hurdle for us. We seem to always seem to have something pop up, and have been unable to set up an emergency fund that we could resort to. Great tips!
This is so helpful. I know we need to make a budget, but it’s really intimidating! We usually only really review our spending patterns at ‘tax time’ and it’s a real reality check! Your step by step plan gives me hope that maybe we could tackle a real budget and trim things in the next year. Thanks!
I know why I am in debt, now I am just trying to get out of it. 6 months to go. Is there a good budget blogging group around.
I have a book coming out next week called “Saving your Way to a Better Life”! It will be available for FREE Download for a few days then $2.99 after that, Its a Kindle version but you do not need a Kindle, you can download a free reader to read it. As a benefit for everyone who gets my book you will get access to my private community where members will discuss the book. Be sure to get it! Sign up for my newsletter and be notified when it comes out!
A budget is so helpful! It’s great knowing precisely how much money we have and where it’s going.
I love the idea of tracking your impulse buys separately. I would never think of that, but it makes so much sense. Very informative, thank you!
We did Dave Ramsey’s class a couple years ago and it was soooo great! We learned so much! Budgeting has really really helped us. I use an ipad app called Expense tracker and each month, my husband and I have a “financial” meeting at the beginning of the month to discuss our financial plans for the month and then again halfway through the month, we talk about how we are doing on the current budget. This keeps us accountable to our budget and has really been beneficial to us!
I handle all the finances and put us on a budget the last few months so we can pay off all of our credit cards. Now we are getting back on track (yikes the holidays!) and only spend on the cards what we know we can pay off right away. We don’t like to carry a balance over each month it will just snowball us back to where we came from.
Definitely getting out of debt this next month. Feels good!!! YOur tips are very helpful