Step one: Know what you bring home. What is your income after taxes? Is this a consistent income? By building your budget around the “No less than” amount, you can build a budget that will work month after month. If you receive bonuses, or work on commission, the additional income can be used to pay down an addition debt without strapping yourself.
Step two: Determine your true necessities. What can’t you live without? Remember, you went into this knowing you’d need to tighten that financial belt.
Do you really use those 1000+ channels? This is a good time to call your cable provider to downsize your cable package. Many times the company will even offer you a huge discount to stay with them.
Start packing your lunch. It is amazing how much money can be saved in this area.
Step three: Track you spending. Write down everything you buy, or spend money on. By writing it down, you can “see” where you can cut corners. (EX: Do you buy an energy drink every time you fill your tank with gas? Do you eat at McDonalds before your grocery shopping trip?) I did this for 30 days to get a good idea of my spending habits.
Step four: Building your budget. Set aside a couple of hours to focus on your budget. Write down the necessities, first. Keep in mind these are the necessities AFTER you evaluated them. Plan out how you will pay them. If you get paid weekly, which bills will you pay each week? If you get paid bi-weekly, what bills will you pay each payday. Make a plan to split them as equally as you can. Now, pull out your “Debt Binder”, and start putting together your game plan. What I did was, I started with the little debts, since there were more of these, I knew that paying them off first would have a larger impact on my credit. Those little debts do just as much damage as those big debts. I was able to pay off more of these, quickly, and my credit report showed the difference. When it came time to pay the big debts, I called the creditors and set up a plan. (**TIP** NEVER sent up payments with your checking account or credit card over the phone. There are some sneaky debt collectors out there that will wipe out your account. Always mail a certified check. The fifty cents is worth it to protect your accounts. Any respectable collector will be happy to let you do this, BUT keep your end of the deal. Pay when you say you will pay.) After each debt was paid, I mailed a letter to the credit bureaus for them to update the debt in their systems. Again, I sent this certified and ALWAYS followed up.
Here is an example of the way your budget should look:
Monthly take home:
Necessities (I always itemize. EX: Rent, power, food, car payment, gas, insurance…)
$1300 per month.
Left for savings and debt= $900
I always put at least a portion of the left over in savings. It was for emergencies.
Debt 1 Balance-$63
Debt 2 Balance-$51
Debt 3 balance- $321
Total debt paid off= $435 (THREE DEBTS PAID IN FULL!)
This if what the final budget should look like:
Savings= $ 100
Debt paid= $ 435
Now subtract from take home:
Left over– $365 (This is for the between paydays expenses)
Again, this is just an example, but it gives you an idea of how to break it down.
I know it’s difficult to cut out some of these luxuries, but it’s not forever. Becoming debt free is one of the best feelings. It’s worth that small amount of time penny pinching, to end that journey being debt-free.
Watch for “Part Three, “Getting Out Of Debt”, next week!