Budgeting to Pay Off Debt & Save Money
If you need to pay off debt and save money, you may need to change the way you think about money. People who get into debt often are looking at money as a toy rather than a tool, or as something with a mind of its own. You need to understand money as a tool that you control, and then make it do your bidding.
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Track All Spending
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The first step in budgeting is understanding where all your money comes from and where it goes. Carry a notebook with you and write down every expenditure, no matter how small. After a few months, tally your expenditures and put them into categories such as rent, food, clothing and entertainment. In doing this, you may discover that certain indulgences you considered minor are in fact costing you a large amount of money. This doesn't mean that you have to give them up, only that you will be more in control of your finances if you remain aware of how much you are spending.
Spending vs. Investing
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People spend money in two primary ways. In the first, the money is spent and gone. In the second, the money is no longer liquid, but it is still present in the form of something with value. Some examples of the first are food, entertainment, travel and goods that are cheaply made and don't last. Some examples of the second are real estate, quality tools and well-chosen antiques. Something like a car still has value after you buy it, but will lose it over time. A well-maintained house can often be worth more than you paid for it. Remaining aware of the difference between these two kinds of spending, and always leaning toward the second when possible, will over time strengthen your financial situation.
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Buy Used
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Buying used items whenever possible can save you thousands of dollars annually. A brand-new car sheds thousands of dollars of value as soon as it's driven off the lot. If you buy a one-year old car, you're getting 95 percent of its value for maybe 75 percent of its price. You can buy used books for a fraction of what new books cost. Buying used tools, clothing, furniture and appliances can also save you money. Making a habit of this allows you to budget less for these things and translating this savings into either less work or more savings or money spent on other items or services you want.
Understanding Money
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Understanding money as a tool and examining your own relationship with it can help you to gain control of spending habits and to distance yourself from habitual behaviors. Reading books on money management and even taking a class in economics can help to see and relate to money in a new light.
Nurturing Non-Financial Interests
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Rather than engaging in self-denial, you are more likely to succeed in developing a sustainable budget by undertaking new and interesting activities that are cheap or free. This is putting the change in a positive light rather than forcing yourself into deprivation. Hanging out with friends, hiking, drawing and cooking at home are all enjoyable activities that cost little or nothing.
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