To erase debt you need to budget. You need to create a budget and stick to it. Here are 6 Best Budgeting Ideas to creating a budget and getting started.
1. Choose a Budgeting Method
Choose a budget format that works for you. Just because all of your friends are Excel experts does not mean you have to use it too. If you are not good with spreadsheets then use pencil and paper. Or find a budgeting program for your computer. Or use an online budgeting tool. But find something that you are comfortable with and that you can easily use. You do not want to be struggling with some huge learning curve as you begin to get out of debt. That will just frustrate you. Keep it simple.
2. Account For All Income
Account for all income coming into your family household. Do not leave anything out. Include bonuses, over-time, side jobs, child support, and any other money that can be counted as income. But make sure it is the net income (after tax money) and not the gross income (before taxes come out) that goes into your budget. If you use the gross income number your budget will appear to have more money available to your household than you really do. And that will lead you to spend money you do not really have.
3. Account For All Spending
On the flip side make sure you account for all your spending. Every last dollar you spend needs to be in your budget. Mortgage payment, rent, electricity, car payment, credit card payments, insurance, child care, medical, car maintenance and any other monthly expense. Also if you make a one-time purchase then you need to figure out where in the budget that fits and add it too. So if you buy a hammer at the hardware store then you better have a line item in the monthly budget to account for that purchase.
4. Budget to Pay Off Debts
Dedicate a section of your budget for paying off debts. All of your credit cards, car loans, school loans, money you borrowed from family and friends, store cards should go into this section. Your mortgage can be included here if you want but I would suggest keeping the mortgage out of this section and just focus on the revolving debt that you can pay off in a few years.
5. Budget to Save Money
Also include a section to save money. You do not want to budget to just erase debt. You want to build into your budget a plan to save money for the future. Line items for emergency funds, investment funds, general savings, savings for a vacation or your next car should go here. Once all of the debt is paid off then this section will grow faster and faster. You will look forward to budgeting for these items. Which means that even after you have paid off all of your debt you must continue to budget to properly save money and account for all of it.
6. Use It!
Use your budget forever. You can not just create a budget one day and think it’s done and throw it in a drawer, never to be seen again. It must be used, edited, studied, modified, adjusted and looked at each and every month. In the beginning you may even refer to it weekly and sometimes daily depending on your spending and savings needs.