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?
Confused about budgeting, finances etc? Be sure to get signed up for my newsletter to get some money saving tips! Also STAY TUNED, I have an eBook coming out and you will have a chance to get it FREE!!! So make sure to come back and visit. My eBook is called “Saving your Way to a Better Life” and is packed with some great information about saving money and managing your finances!