If there is one secret to getting out of debt it would be that you MUST have a BUDGET. Period. Without a budget you will never erase debt forever. A budget is your roadmap to getting to your financial destination. The destination is the goal of financial freedom. A budget will lay out where all of your money is going, indicate which debts and expenses will be paid off, and a good budget will even show you where you are saving money.
A budget does not need to be complex. If all you use is pencil and paper, that will work. You do not have to buy some fancy software program or take 5 months to learn said program. If you can draw lines on a paper and write your name, you can create a budget.
Over time a budget will change from being just a map of paying off debt to a map of saving money and building wealth. Do it right and eventually you will look forward to creating your monthly budget. Do it wrong and you will give up in frustration.
A budget needs to be reviewed and modified often. It is not a build it once task and forget about it. Budgets will change month-to-month, even week-to-week based on the needs of your household, emergencies that crop up, and even holidays that come about. Your budget in December will probably look quite a bit different than your March budget since you might have holiday gifts budgeted for December. March might require budgeted money for the kids’ volleyball games. July may require budgeted money for the summer vacation to the NJ shore. And the following year volleyball may fall in July and family vacation in September. It is never the same twice. Never the same month-to-month or year-to-year.
Even when you are out of debt you will still need to create a budget. You are going to have to tell all of that money that is no longer going to debt repayment where to go and what to do. If you do not, you will be left wondering were did all of your money go. Worse, you could find yourself deep in debt again.
Steps to create and use a successful monthly budget. Before the start of the month:
1) Calculate your monthly after-tax take-home income (your net paycheck)
2) List all of your debts and payments in a table
3) Allocate every dollar of your take-home pay to one of the table cells
4) As you pay a bill or debt, cross it out
5) As circumstances in your life change, modify the budget and money allocations
6) At the end of the month, repeat for the next month
A budget is just a tool used to erase debt and save money. Use that tool to take control of your money and free yourself from unnecessary financial burdens. After doing this for a few months you may find yourself becoming excited to check your budget. Especially as debts fall away and you suddenly find yourself with extra money each month. How do you take control of that extra money each month? With a budget of course.