I’m going to let you into my secret about budgeting. Budgeting doesn’t necessarily translate into restriction, you but when viewed from a different perspective it is freedom. Yes! Budget is freedom. Having a fancy dinner on weekends or take outs just for ease may be what you want now but it’s something you are doing unconsciously and may regret it at the end of the month. Budgeting gets you focused on what you want from life and helps your dream become reality.
Maybe the debt you are facing now could be something you feel isn’t even important now. The life-and-death situation was just in your head. But now you are left with debt. It’s something that is stressing you out.
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Stressing out isn’t going to help you out. What you need is a clear plan of action on how to pay off your debt. That’s where budgeting comes in. It will help you save money to pay off your debt, and still enjoy the better things in life.
Start by listing all your income sources along with them the amount you earn. This includes; wages, alimony, child support or any other income you have. Once you have this list, it is clear that how much money you make in a month and that’s a target to start with. You must now plan accordingly.
Realistic Spending Plan
The second step is to list down the expenses that you cannot forego. These are the necessary items such as utilities, grocery (take a step down if necessary), transportation or parking to work, rent or mortgage, medication and so on. This is where you focus on the definite expenses that cannot be neglected and expenses such as cable TV and other particulars that must be let go. Now you know the amount of money you are spending. Just create a realistic spending plan that you follow until you are debt free.
This plan is totally based on priority; you must prioritize your spending. Here are some tips that cut down the niceties from your monthly spending. First of all, you should consider forgoing expensive drinks or planning out weekends for some time. Use your mobile phones for calls only and cut down the extra packages you use for entertainment. Pay with cash. Don’t use credit cards!
Finding the Buffer
If the amount of money earned is 20% more than your realistic spending plan than that’s an ideal situation. You have that buffer needed for saving. But if it is equal or unfortunately less than you’re earning. then you need to either cut down your necessities or find one more source of earning. Find a business you are passionate about. If capital is what’s stopping you, then you can always get a loan with bad credit. But before you consider investing, make sure your business is low risk and its something you are passionate about.
Saving is the most important step as this will help you pay off your debt. For saving, you need to create a separate account. Do not touch this account, except in extreme emergencies. Needing a new dress for an office party doesn’t count as an emergency.
I’ll be honest with you, if you do not focus on your saving, then you will keep using your credit line to deal with your debt. The debt would still be there five or six years later. Not a fancy situation. And once you have enough money in your saving account, start looking for a financial planner. Invest for your future.
Updated List of Spending and Saving
Create an excel sheet for your spending and saving. Update it on a periodic basis. This helps you check which category has more spending in a month. You can then balance it by cutting your expenses in some other area. This check and balance will help you maintain your savings. Learning to manage your monthly expenses takes time, patience and a lot of compromises. But do not lose patience. Be persistent and you will see results for yourself.
Debt that Fits Your Budget
Ideally, you need to lower your credit utilization ratio so that your credit score increases. This is going to automatically lower your debt. If your credit utilization ratio is 10%, then you need to lower it. For this, you need to note down your credit limit and divide it by the number 10. This is your target which you need to achieve. Pay of as much as you can to get to this number. For this, you need to budget again.
Making a budget has many benefits. It transforms stress into a feeling of empowerment. It helps reveal the money you are wasting and direct your priorities. Not only does it direct priorities but creates a habit of saving and makes a person sensible enough to think ahead of time. Plan for the future.