Setting Up a Budget to Get Out of Debt
Eliminate the debt that is weighing you down so that you can live the kind of life you want . Create a budget that makes the best of the money you are already earning in order to knock down your bills, one by one. Get excited by celebrating each small success and keeping your eye on the ultimate goal of debt free living and financial freedom.
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Instructions
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Track your living expenses for one month in order to assess your spending patterns. Save all receipts and sort them by category, such as groceries, clothing, eating out and entertainment.
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Determine where each and every dollar you made over the last month went. Add dollar amounts from all of your receipts, as well as what you sent to bill collectors, spent at the vending machine or on coffee. Compare the amount of money that came into the household with the amount of money that was spent to determine whether you are in the negative or in the positive at the end of the month.
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Eliminate all unnecessary expenditures from the family budget. Make hard decisions by getting rid of cable, Internet (unless your job demands it) and frilly cell phone plans. Stop eating out and start using coupons to cut down on your grocery budget. Make hard sacrifices now so that you can get out of debt and experience financial freedom later.
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Set aside an emergency fund to use as a cushion while you are getting out of debt. Financial guru, Dave Ramsey suggests setting aside $1,000 to start with. Use money from eliminated expenses or go crazy selling things to get the money together as quickly as possible.
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List all of your debts on paper, smallest to largest, along with your minimum payments.
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List all of your necessary expenses, including groceries, clothing, electric, water, gas, transportation and other things you cannot live without. Include minimum payments on your credit cards. For daily expenses, pull out cash and stash it in categorized envelopes for each budget category. This will keep you from going over budget. You can use extra money at the end of the month as a cushion or to help pay down debt.
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Subtract your necessary monthly expenses from your income in order to determine your disposable income.
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Put all disposable income toward the credit card with the smallest balance. Combine that extra money with the minimum payment to pay it down quickly. Once it is paid off, put the money you would have spent on the first card toward paying off the second card, and so on. Some experts recommend paying down cards with the highest interest rate first, but starting with the smallest balance can give you the encouragement and momentum you need to keep going, by giving you faster upfront rewards.
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Review your budget on a monthly basis to ensure that you are sticking to it. Celebrate your success when you pay off a card and enjoy watching your credit card balances go down. Amend your expendable income if you get a raise at work or if extra expenses like a new baby or medical emergency arise. If you tap into your emergency fund, put expendable income towards it until you bring the balance back up and then resume paying down your debts.
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References
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