A good example is how finding great credit card deals can help you get out of debt. There’s a number of functions that a credit card offers that can help you to achieve this goal, which we’ll go into more detail about here.

Carry out a balance transfer

For many people, paying off what they owe isn’t the problem – it’s keeping up with the growing interest. Therefore, if you’ve got debt on a number of cards and are paying a hefty APR on them, consider moving to a card that offers a lengthy 0% period on balance transfers. Pay off the minimum amount in full at the end of the month and you’ll only be paying off what you owe, rather than any interest.

Work out your needs

The best credit card deal for one person might not be the best for another. So think about what it is you’re looking for. For example, if you know you spend a high proportion of your monthly budget in one store, consider taking out a credit card that offers cashback in this outlet. Or if you’re a frequent flyer, look into airmiles credit cards that allow you to claim free flights and hotel stays, saving you money on things you’d be spending on anyway. In this instance, the less you spend on your travel, the more of your money you can devote to paying off your debt. It could even be the case that the rewards on some cards lead to you spending less on days out or those little treats you allow yourself from time to time.

Find a lengthy 0% deal on purchases

When you’re in debt, it can be easy to end up a spiral that sends you further and further in the red. You may want to spend as much of your money as possible on getting back in the black, but you still need to spend on the essentials. So look at whether a card with an introductory 0% offer on purchases could give you a little breathing space and allow you to spread the cost of your purchases. 

Creating And Sticking To Your Budget Will Put Your On The Path To Financial Freedom

How To Stick To Your Budget – Sticking To Your Budget Tips

For many, a good budget is the first step on the road to financial freedom and is a critical wealth building asset.   And while creating a budget is a pretty simple thing, creating a budget that works in the real world that you can actually stick to is a bit trickier.  So today we’ll cover some tips you can use to stick to that budget of yours when sh*t happens and life tries to get in the way.

A budget doesn’t have to be a dirty word.  Most people seem to get this notion in their head that if they try to make a budget they won’t be able to continue doing the things they like.  For most people that’s simply not the case.  For example, if you have a weekly bowling night where you go and have a couple drinks afterwards, you can continue to do that – you just have to budget for it.

A budget doesn’t stop you from doing the things you enjoy doing – it just keeps track of how much money you can spend on those activities and where all your money goes.   However…

You Only Have So Much Money

While it’s true that they print more money every day, you probably only make a small portion of it and your funds probably have limits.

The first thing you need to know is how much money you make per month, take home, after taxes.   It may vary a little bit, but there is probably a certain amount you can count on making each month.  For example, you may work some overtime on certain months or you may get a Christmas bonus, but normally, you don’t.

I recommend only counting on what you get from your regular full time hours (or however many hours you usually work).  Don’t try to make your budget contingent on getting overtime are your job or you could have a serious shortfall if you don’t get it on any given month.

Once you have that number, write it down.  That’s your starting point for each month.

Now you need to know what your expenses are and what you spend money on.

To really make a budget that works, you need to figure out where every penny is going.  I know it sounds tedious but you can’t very well budget your money until you know exactly where your money is going.

I highly recommend keeping a notepad (or app on your phone) with your for one to two weeks and writing in it every single time you spend money, even if it’s only a dollar or two.

After two weeks, you should have a pretty good idea where your money is going and you’ll be able to create categories for your expenses.

Fixed Expense vs Variable Expenses

Your expense categories will get classified as either fixed or variable expenses.

Fixed expenses are the ones that don’t change from month to month.  Some likely examples are your mortgage (or rent), car payment, cable, cell phone, student loan, and car insurance.   Remember to write down all or your fixed expenses as I certainly didn’t list every possible fixed expense.

Variable expenses are the expenses you have that change from month to month.   You’ll probably have several of these as well.  Some examples are food, electric, gas bill for heat, entertainment, gas for your car, auto repairs and maintenance, clothing, gifts, medical expenses, home maintenance and repair, etc.

Remember Some Expenses Aren’t Due Every Month

There are a lot of expenses that you’ll have throughout the year that don’t come up every month.  You just need to figure out how much money you’ll need for them and save money each month so that when those expenses do come up, you have the money there for them.

Some examples are Christmas money or gift giving money, property taxes (if not paid by your Escrow account), car insurance (if paid quarterly of every six months), income taxes (if you often pay money to the IRS).

A Balanced Budget Is A Beautiful Thing

While the government may not be able to balance their own budget, if you’d like to get out of debt (or stay out of it) and achieve financial freedom, I highly recommend balancing your budget.

That means that all the money at the beginning of the month is assigned to go somewhere until there is no money left.

If you have money left after figuring out your expenses, that’s a good thing, but that money needs to go somewhere so that you end up with $0 showing up at the bottom of your balance sheet.  Save it, use it to pay off debt, just assign it to go somewhere.

If you run out of money before you’re done firuing in all of your expenses, then you’ve got a problem.  You’re going to have to reduce your expenses until you can get your budget to balance.  Remember that you can’t keep spending more money than you make – things just don’t work that way for long.

It may mean you have to get rid of cable or get rid of that expensive smartphone plan.  Maybe you need to live some place less expensive.  If you’ve cut costs every place you can think of and still need more money, then it’s time to start looking for a second part time job.  That budget has to balance and you need to either make more money or reduce expenses until you can make it balance.

The Slush Fund / Emergency Fund – Key #1

The slush fund (or emergency fund if you’re a Dave Ramsey disciple) is the most critical factor to making your budget work in the real world.  It’s there to cover those little emergencies you couldn’t have seen coming or that came up unexpectedly.

Initially, you’ll want to get $1,000 saved up to cover any dire emergencies that come up.  You want to do this before you start focusing on paying down your debts as having that $1,000 is an extremely important safety net and will help alleviate stress.

You can put it in a savings account of money market account or whatever you please just so long as the money is liquid as can be available anytime you need it.  i.e. don’t invest it in real estate or bonds that takes years to mature – the money is for emergencies and needs to be available when you need it.

Fun Money / Blow Money – Key #2

All work and no play makes Jack a dull boy!  Some months, sticking to your budget can seem like no fun at all.  That’s where having fun money comes into play.  This is money that you can do whatever you like with and here’s the things – it’s meant to be spent that month.  It’s not money that’s meant to be saved (you have other categories for that).  Spend it on whatever you like – frivolous or not – it doesn’t matter.  Fun money is for you to have fun with and enjoy completely guilt free on whatever you want.  Make sure you budget a little each month to have some as it’ll make living on a budget a whole lot easier and pleasant.

Cash Is King

While it may seem a little counterintuitive, using cash for all the variable expenses in your budget is the easiest way to stay within your budget.  Sure, that debit card or credit card might seem extremely convenient and easy to use.  While your debit card does leave a paper trail which is good, it’s way too easy to spend money using your card and it’s really easy to exceed your limits in any one category since you’re probably not going to get a separate card for each category you spend money on.

While I guess you could get a bunch of prepaid credit cards for each variable expense category where you’re going to spend money each month, at that point I think you’ll find it much easier to just carry the cash around.

So let’s just assume you’re going to use cash for all your variable expenses and that you’ll just keep the rest of the money in the bank for your fixed expenses and use your banks free online bill pay to pay them when they’re due (just about every bank offers this service for free, if yours doesn’t, switch banks).

If you get paid monthly, each time you get paid, that money gets divided according to your budget and then the cash for your variable expenses gets put into envelopes.

As you spend money, you only spend money from the proper envelope.  For example, if you go to the grocery store to buy food, when you get up to the register you only pull money out of the “food” envelope to pay for it.

Paying Off Your Budget If You Have Credit Card Debt

For the majority of people, credit card debt is going to be part of your budget and will need to be accounted for.  I recommend classifying your credit card debt as one fixed expense and try to get this paid off as quickly as possible.  That means you’ll need to stop using your credit cards.  Remember you’ll be paying cash for things and if you don’t have enough money to buy something, instead of whipping out the credit card, you simply don’t buy the item and you wait to purchase the item until you do have enough cash saved up.

Troubleshooting and Helpful Tips

If at first you don’t succeed…

If you’re new to budgeting, things might not work out as you expected the first month – heck, they probably won’t.  You’ll probably mess up the first month, and maybe the second and third as well.  But keep trying.  Sticking to your budget isn’t always easy so if you make a mistake, learn from it, and try to do better the next month.  In the real world things go wrong, and all we can do it try again to do it right.

Everybody needs to be on board (important for married couples)

If you’re married, it’s critical that both you AND your spouse be on board with the budget.  I can’t tell you how many times I’ve had people complain to me about all the money their spouse spends and they go on and on.  It’s because only one person is doing the budgeting and the finances while the other person remains blissfully ignorant.

Sure, one of you may be the person who pays the bills and handles the money, that’s fine.  However, when it comes to setting your budget, both of you need to discuss it and find one that both of you can work with.   Trust me, if you want peace and harmony in your household, both of you need to do this.

You can borrow from an account one month, but try to pay it back the next month.

This will probably happen to you frequently and this happens even to the best budgeters so don’t sweat it.  For example, let’s say there is a particularly hot summer month or cold winter month and your heating or cooling bill is more than you have budgeted for it.  For that month, you might be able to borrow the money you need for your bill from your auto repair account or clothing account but try to pay that money back to the proper account the next month.

Personal finance software can help

You don’t have to try to create a budget on a piece of paper and do all the math yourself (my father does, but I sure don’t).  I created my first budget with Excel and still use it for budgeting for some things though I use Quickbooks for most things these days (I run a small business so that’s what works best for me).  You may find a program like Quicken or Moneydance makes your life a lot easier as it can sync with your bank accounts, keeps track of all your money, and they each have a variety of financial calculators built in for tracking where your money is going and helping you budget for upcoming expenses.

Those envelopes may feel old school but they really work – use them.

Sure, carrying around separate envelopes for various expenses may feel silly especially for a guy who has limited space in their wallet (it did for me at first) especially when most people use their debit card for expenses these days, but trust me, it sure makes sticking to your budget easier.   If you’re a beginner these are essential and as you get more experienced you can experiment with other systems but you may find the envelope system just works best.

Saving Up For Big Purchases

When it comes to making big purchases like a used car (I recommend gently used for most people as new cars are not a good purchase – leasing is even worse), bedroom set, or high definition television, remember that you can still buy all of these things… as soon as you have the money saved up to buy them.  Just create a category in your budget for these things and a date when you’d like to purchase the item.  Then it’s just a matter of taking the total amount of money you need to buy the item divided by how many months until you get the item.  The number you end up with is the amount of money you need to save each month to be able to purchase the item.  This is how your grandparents probably purchased things and how I recommend you do it as it’ll keep you from taking on new debt and paying interest.

You’re not required to make your budget a monthly budget.

If a monthly budget just doesn’t work for you, you could make a weekly budget, a bi weekly budget or a quarterly budget or use a combination of multiple budgets just like business do.  However, since most bills are paid monthly and everybody gets paid at least once a month, we find that monthly budgets tend to work best for the majority of people.

Identifying your financial problem – Know when to seek help

You must always remember that self-awareness is the most important step to every endeavor. Personal finance is no exception. Check out some signs that will tell you you’re going to face financial danger in the near future.

• When you pay just the minimum monthly payments on your credit cards, you can be sure that you are about to face financial danger in the form of accumulated interest rates and inability to make timely payments.
• You’re not saving money to achieve your future financial goals like saving for down payment and saving for your retired life.
• You’re borrowing massively to pay back your loans. 

Evaluating the basics of wealth building – Go frugal to eliminate debt

Building wealth is more like filling a bucket with water. You can never do the same if there are holes in the bucket. Your expenses are the holes in your wallet and you must take necessary steps to make the holes smaller or plug them totally. Here are some ways in which you can spend less than you earn and repay your multiple creditors.

• Address your needs prior to your wants: Fundamentally, most financial experts are of the opinion that one should spend money primarily on food, clothing, shelter and health before spending it on any other things. You need to understand the subtle difference between need and want. Before purchasing a thing, ask a simple question to yourself, ‘Do I really need it?’ If answered no, drop the plan.

• Follow a frugal budget: Financial experts are of the opinion that the surging US national debt level is due the increase in the number of people who do not follow a budget. Most Americans love to hate a budget. However, they are oblivious of the fact that budgeting is the secret to financial freedom. Create a frugal budget that can be followed. Evaluate your budget every month and make improvements.

• Trigger your debts: As you start getting positive results from the steps mentioned above, you must start triggering off your debts. Save enough money to pay off your debt accounts one by one. Don’t hurry to repay them all together. Just make sure that you keep on making the minimum monthly payments while paying off a particular debt account.

As the federal US debt level is about to cross the debt ceiling ($14.28 trillion), every citizen must make sure that he takes personal financial steps towards seeking financial freedom. If not free debt consolidation programs, you can get help from non profit debt consolidation program to reduce the burden and rejuvenate your financial life.

Debt is a common issue to most people and more than one adult may find themselves heavily in debt at some point. This may be a depressing situation, but did you know that you can negotiate with your creditors? If you follow some effective debt settlement tips, you may find yourself in an easier position. You may still be in debt, but you won’t have to spend sleepless nights thinking that you can end up homeless because of your bad credit.

Here are some debt settlement tips straight from the experts:

Though you may think that your creditors are aggressive, you can actually negotiate with them when it comes to your payment terms. Most credit companies do not like to write-off your debt because it would mean they would have to use collection agencies, which would require a high percentage cut. They may also end up with a fraction of what you owe them because you are pushed to file for bankruptcy. Settlements will be welcome especially if your situation is due to some unforeseen accidental expenses.

Be reasonable when you are trying to negotiate for a settlement. A common mistake most people make is to threaten their creditors. This would make things worse for you because it would narrow your options. Instead, you should reasonably get them to agree for smaller payments. There are also other arrangements you can make, but you have to think about your current situation and your projected financial state in the near future.

It is important to be realistic when it comes to your case. As much as possible, negotiate if you think that your finances will be better any time soon. It may take a few months, but if you think you can be able to hold on. You should arrange for debt settlement. If your computations will show that you won’t be able to pay your debts any time soon, you may consider filing for bankruptcy.

Do remember that bankruptcy should only be used as a last resort. This is a serious circumstance and there are many implications you should consider. It is not a reprieve from your debt, but is rather extreme since you have to give up some of your remaining assets.

For some people, debt is an unavoidable circumstance because of some conditions. There are people that may be in debt because their lifestyle is too loaded for what they are earning. Some have simply failed to invest their money properly. There are also people who may find themselves with a large credit because of unexpected situations. No matter what the reason is, it is still an unfortunate circumstance and everybody should be given a chance to avoid it. The answer for this may be to make some time to take some debt management courses.

People who will be filing for bankruptcy may find themselves attending debt management courses, but you don’t have to reach this point to start taking classes. Experts would recommend this course to adults because this is one way for people to learn how to manage both their debt and their investments. You can say that taking this lesson early on will help you prevent bankruptcy. Since you would have a better idea how to take care of your finances, the fewer mistakes you will make. It can even help you from making any bad investment decisions on the first place.

Though taking this course will not stop you from going in debt in the future, it does have a lot of benefits you should consider. For its many advantages, you won’t have to spend too much of your time. Though some courses may be held in your local community college, there are many accredited websites that can teach you this course. Just like in real classrooms, you would be given a complete syllabus of what you can learn. Before you sign up for a program, you can check out this list so that you would have a clear idea what to expect.

Some people would unfortunately be bankrupt at one point of their lives. If you are one of them, you don’t have to be anxious because most people have bounced back from this unfortunate case. Taking a debt management course can easily help you prevent making the same mistakes all over again. It would only take you a couple of hours, so you should sign up and consider it as a great investment.

When people go into deep debt, they often think that the only solution to the problem is to simply get a bankruptcy and start over again. Bankruptcies, though, aren’t exactly “starting” over—they stay on your credit record for years and also make you look bad to potential lenders. So what are you supposed to do if you’ve got deep debt? You could take the bankruptcy route and damage your credit more or you could do something else that will allow you to get out of debt while not further harming your credit: credit counseling.

What is Credit Counseling?

Credit counseling is essentially debt counseling. When you get into a lot of debt and are unable to pay it off on your own, you’ll go to a credit counselor who will tell you the best method of paying off the debt. Credit counseling gives you an effective way of paying off whatever credit card debt you may have.

When should I consider Credit Counseling?

Anyone who has debt which they cannot pay off should consider credit counseling. Credit counseling offers you a way out of the mess of credit card debt. Qualified and experienced credit counselors can look at your debt and determine the best way of paying it off. Depending on how much debt you have, your counselor may tell you about a debt reduction plan to help rid yourself of the debt.

What is a Debt Reduction Plan?

Under a debt reduction plan, your counselor will consolidate all your debts into one monthly payment which you give to the counselor who then disperses it to creditors. Your counselor will also attempt to lower your interest rates and will arrange payments to each creditor in a way that enables you to pay off the debt as quickly as possible. Most debt reduction plans last anywhere from 12-60 months, although people with a huge amount of debt ($30,000 or greater) may end up in a debt reduction plan of longer than 5 months. How long your debt reduction plan lasts will entirely depend on how much you can afford to set aside for your bills each month and how much debt you have.

Why is Credit Counseling Effective?

Credit counseling is effective because those who work as credit counselors are able to financially analyze any situation and tell the person who is in debt what the best option is for them in regards to paying off the debt. They are able to create individualized plans for anyone who is debt.

Why is Credit Counseling NOT Effective?

Generally speaking, most credit counseling is effective. However, if you go to a credit counseling agency that is unaccredited and dishonest, you will run into big problems. In fact, you may even be worse off than before. That’s why picking the right credit counseling agency is extremely important.

How do I pick the right Credit Counselor?

The first step toward selecting a credit counselor is to open your phone book. Look for the section of the yellow pages about “Credit counseling”.

Take a look at each listing—there should be at least one local credit counseling agency in your area. As you look at each listing, make note of the name of the counseling agency.

After you’ve come up with a list of agencies, log on to Google.com and google each agency. Really research each agency so that you do not end up with one that isn’t effective. You may want to check out http://www.nfcc.org/ for a list of accredited credit counseling agencies. Those agencies that are accredited are usually the most effective ones.

Questions to Ask a Credit Counselor

Once you narrow the list down to potential suitors, you’ll still have some work to do before you can pick a good credit counselor. Each agency that you may consider should offer a free session. Take advantage of this session to ask the counselor some of the following questions:

• What fees are associated with using this counseling agency to get out of debt? While virtually every counseling agency is non-profit, they will still all charge some fees to help cover administrative costs. Generally speaking, you will not want to choose an agency that charges more than $50 a month for their services.
• How will you tackle my debt?
• Will you employ a debt reduction plan?
• Will I have to pay any extra fees?
• It’s important to know how a perspective counselor will help you to get rid of your debt before you even sign up with them.
• How long will the plan take? In other words, how long will it take for me to pay off all this debt? Time is money, and if you’re looking to pay off your debt in a specific amount of time, perhaps a year or two, it’s important to ask how long it will take you to pay off the debt using this credit counseling agency.
• Are you accredited? It’s a legitimate question that you should ask every single perspective credit counselor. Good, accredited counselors will not mind this question. Those who aren’t will mind the question, and that’s a good indication that they are not right for you.
• Will you tailor your plan to fit my unique needs? Everyone’s situation is different and good credit counselors will take all of your needs into consideration when coming up with a plan. Make sure that the credit counselor that you are considering will be able to tailor fit a plan to you.
• Can I meet with you once a year to discuss my debt and how much I’ve paid off?

It’s important to stay updated when it comes to using credit counseling. Most credit counseling agencies will encourage meeting up with their clients once or twice a year to discuss details of the plan and how well it is working. They will also review your credit report with you.

Recommended Credit Counseling Agencies

It is often very difficult for some people to find credit counseling agencies that are respectable and legitimate. While the agencies below may not have offices in your city, some offer online services that you may be able to use.

• GreenPath – GreenPath has offices in many states and cities. They’ve helped millions of people get out of debt and are accredited.

• Delray CC – Delray offers completely free credit counseling services to millions of people. They are accredited and can counsel via the internet or the phone.

• MoneyManagement – MoneyManagement offers services both online and in person at their many locations. There are some fees associated with MoneyManagement, but they are minimal. MoneManagement is fully accredited and very effective.

Keep in mind that these are just three of the many possible credit counseling agencies that you can use to get out of debt. Check the NFCC for more possible options.

Credit Counseling

If you are not disciplined enough to create a workable budget and stick to it, cannot work out a repayment plan with your creditors, or cannot keep track of mounting bills, consider contacting a credit counseling organization. Many credit-counseling organizations are nonprofit and work with you to solve your financial problems.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Regardless of your particular need, selecting the right credit counselor is vital. Unfortunately, some organizations, including some that label themselves “nonprofit credit counseling agencies,” can be underhanded and more concerned with helping their own bank accounts than helping yours. An April 2005 report by a U.S. Senate investigating committee reported, “Some new entrants to the industry, however, have developed a completely different business model – a ‘for-profit model’ designed so that their non-profit credit counseling agencies generate massive revenues for for-profit affiliates.

Consumers need to know and understand the differences when selecting a credit counselor. They must know the warning signs. The following information can serve as a valuable guide to help consumers “know the difference” when choosing a credit counseling agency.

1. Ask the BBB (Better Business Bureau) and other third parties about the agency. A number of independent or government organizations work to protect consumers by collecting complaints and making the information public. The BBB is one such agency.

2. Be skeptical of extravagant promises. Some organizations claim they can “fix” a bad credit report or credit score. Others say they can settle a consumer’s debts for relatively little money. If an agency sounds too good to be true, it probably is. Reliable credit counselors help people manage their money better and, if appropriate, can set up a realistic repayment plan that is acceptable to creditors.

3. Make sure counseling sessions are substantial. The length of a counseling session will vary from agency to agency, but consumers need to make sure the counselor takes enough time to understand your personal situation

4. How does the agency protect consumers’ money? Consumers need confidence that any funds they hand over to an agency for debt repayments are secure. Consumers need to ask for evidence that an agency is bonded or has insurance that protects their money from fraud or the agency’s own financial difficulties.

Debt Management Plans

If your financial problems stem from too much debt or your inability to repay your debts, a credit-counseling agency may recommend that you enroll in a debt management plan (DMP). A DMP alone is not credit counseling, and DMPs are not for everyone.

You should sign up for one of these plans only after a certified credit counselor has spent time thoroughly reviewing your financial situation, and has offered you customized advice on managing your money. Even if a DMP is appropriate for you, a reputable credit counseling organization still can help you create a budget and teach you money management skills.

In a DMP, you deposit money each month with the credit counseling organization, which uses your deposits to pay your unsecured debts, like your credit card bills, student loans, and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates or waive certain fees, but check with all your creditors to be sure they offer the concessions that a credit counseling organization describes to you.

A successful DMP requires you to make regular, timely payments, and could take 48 months or more to complete. Ask the credit counselor to estimate how long it will take you to complete the plan. You may have to agree not to apply for — or use — any additional credit while you are participating in the plan. As above, here are also things to look for when looking for a Debt Management Plan.

1. ALL payments sent to the agency should go to creditors and be disbursed in a timely manner. Some agencies may take the entire first month’s payment and call it a “fee” or “donation.” Consumers should ask whether this is the agency’s policy. It is also a good idea to ask whether the agency holds payments or disburses them shortly after receipt. The success of a DMP relies upon full and timely payment to creditors to reduce a client’s debt.

2. Does the agency provide a full range of services, or is it just trying to push a profitable Debt Management Plan? Consumers should seek out an agency that provides a full range of services and tailors plans to each consumer’s personal circumstances.

3. The full amount of Debt Management Plan repayments should go to creditors. Some agencies may take a portion of a consumer’s debt repayment and call it a fee or “donation;” others may even take the entire first month’s payment. Consumers should find out how much of each monthly payment is going to creditors and how much is going to the credit-counseling agency. The full amount of those payments should be paid to creditors to reduce the client’s debt.

4. Make sure the agency will work with all of your creditors. Before entering a DMP, consumers should make sure the agency would work with all of their creditors. Some agencies may refuse to work with creditors unless the creditor agrees to a certain level of financial support for the agency. No agency can require creditors to recognize a DMP program, but the agency should be willing to reach out to every creditor.

If debt has consumed you, and your life is getting more difficult by the day, then Debt management and credit counseling are probably two very important choices to consider. If you have severe debt, you may be eligible to enroll in a Debt Management Plan. It takes approximately 36-60 months to repay debts through a DMP. This is sometimes the best alternative to debt freedom.

Debt has the ability to ruin lives. If you’ve gotten yourself into debt, you must make an adequate plan in order to take the steps to get out of debt. Paying off your credit cards and other debt is only a part of the equation. The other big part is actually making a budget. Without a clear-cut budget for your money and expenses, you are setting yourself up for failure.

Budgets are key to eliminating debt

One of the big reasons why many people go into debt is that they do not have control over their finances. They will spend money without thinking and will not know what to do when the first big bill comes along. People with budgets are far less likely to go into debt than are those without budgets.

Budgeting is a skill that people often do not learn. Perhaps you’ve been putting it off for some time. That’s understandable, as many Americans seem unwilling to limit their spending in anyway. The American dream is to have as much as possible, and the thought of budgeting is a bit silly.

However, when you look at the big picture (including not just the present, but the future—retirement etc.) it becomes apparent that budgeting is absolutely necessary for survival. Even those who earn comfortable livings and seemingly don’t have to worry about finances can benefit from solid budgeting.

We will be covering the basics of creating a solid budget in this article.

Step 1: Examine Your Salary

Do you know exactly how much you make each month? Without this knowledge, creating a budget will be impossible. Look at your pay stubs for the past few months and see how much, on average, you are taking home (after taxes). This is what you have to work with when you create the budget. This amount must be accurate—otherwise, your whole budget will be off.

Step 2: Look at Your Monthly Expenses

What are you spending your money on each month? Make a list of everything you are spending money on each month (feel free to drag out your monthly bills and check book to see how much you are paying out for each expense). This will include debt (credit cards, mortgages, car payments etc.), insurance (home and auto), utilities (gas and electricity, plus water), taxes (property taxes), groceries, clothing, basically anything that you spend money on.

Step 3: Using the List, Group Together the Items

Using Microsoft Spreadsheet, create a table for your expenses. Group debt-related expenses together (so put your credit card bills, car bills and mortgage bills) in a subject of “debt”. Then group utilities together under a subject of “utilities”. Put insurance bills under a subject of “Insurance”, and then put groceries and other household related costs under a subject of “household expenses”. Finally, put all of these under one big subject of expenses.

Step 4: Write Down How Much You Are Paying in Each Category

For every single item on your list, make a note of how much you are paying. Once again, the information you give must be accurate, or else it could throw off the entire budget.

Step 5: Add Up All the Expenses

At the very bottom of your spreadsheet, make a new category that says “total expenses”. In it, write down the sum of everything on the list. This will show you exactly how much money may, or may not, be left over for “spending”.

Step 6: Subtract the Expenses from the Earnings

Hopefully when you subtract the expenses from the earnings, you get a positive number. ? If not, you’re obviously in too much debt and should seek some form of help for that (be it credit counseling or bankruptcy). Let’s assume, though, that you have money left over after the expenses. This money should be used in a logical way and should be well-planned.

Step 7: Decide What to Do With Excess Money

When you determine how much money is left over, you should then figure out what to do with the money. One of the best things you can do with it is to save. Ideally, you want to save about 10% of your salary. While this isn’t feasible for everyone, it should be for most. If your left over amount is about 10% of your salary, try very hard to save as much of it as possible. If your left over amount is greater than 10% of your salary, you can then feel free to save/invest 10% of it and then use whatever is left to maybe “treat” yourself or your family to something. This could be a vacation or maybe a College savings account for your kids.

Step 8: Write Down What You Are Doing With Excess Money

Create a new category titled “left over money”. Delegate the left over money within that category. You may wish to put down that you’ll be setting aside “X” amount of money each month in a checking or savings account. You may also wish to put down that you’ll be putting aside “X” amount of money each month for extra things like vacations, nights out etc.

Step 9: Make Sure All Amounts Agree

Add your total expenses to the totals of your “left over money” category. Make sure that the two amounts, combined, add up to your salary amount (earnings). If they do, your budget is in balance. If not, you must make necessary changes to your “left over money” category to make the budget in balance.

Tips for Making a Budget Work

Making a budget work isn’t always as easy as setting up the budget. In fact, it can be downright difficult for many people. Here are three easy tips to make your budget work for you.

1. Set aside funds for each category. So if your budget says to spend $200 a month on groceries, only put $200 aside for groceries. Do not overspend.
2. Write down everything you buy and everything that is an expense. Doing so helps to keep you accountable and helps to keep you on the right track as far as the budget is concerned.
3. Always strive to stick to the budget. If you cannot afford something and it is not in the budget, do not buy it. Even if you really want that big screen TV, if you cannot afford it, do not make the purchase as it will completely goof up your budget and your credit.

The bottom line is that if you stick to the budget, you’ll be in good financial shape.

Keeping a spending diary was a big eye-opener for my husband and myself.  Yes, it’s a huge pain in the arse to write down every penny you’re spending but it’s a vital step in seeing where money is going and also is an invaluable tool when setting up a budget.

I wasn’t too keen on the idea of keeping a spending diary when we were deciding it was time to get serious about getting out of debt.  I actually refused to do it at first because, as I told my husband, “You’re just going to use it as a way to criticize and judge every penny I spend” and there was no way I was signing up for that kind of misery.

So we made a deal.  There could be absolutely no judging or being critical about what was being spent.  The spending diary was a “fact finding” mission only.  But, just to be sure my husband wasn’t tempted to peek and say something negative to me, I kept my spending diary (just a cheap little notebook) with me at all times and never left it laying where he could easily pick it up and look at it (I love him but he’s just as prone to temptation as the next person!).

We decided to track our spending for a month because my husband and I are both paid monthly.  You don’t have to do it for a month if you don’t want to – even a week will help – but I think doing it for a month is much better because it gives a better overall picture of spending.

What did we find out in that month?  The biggest shock was our food and restaurant expenditures.  It was, by far, our largest spending category – almost $800 on restaurants alone!  And it wasn’t from going out every weekend to nice restaurants with white tablecloths and cloth napkins.  It was from being lazy and not wanting to cook 3 or 4 nights a week and going out to grab a bite instead or picking something up on the way home; or not feeling like packing a lunch and running out for lunch instead.

We also had a lot of what we labeled as “miscellaneous” spending – things that didn’t fit into our categories of: groceries, restaurants, Montana (not the state – our dog’s name; yes she got her own category.  She has to eat too); clothing; toiletries (toothpaste, shampoo, haircuts, etc.), entertainment (didn’t include restaurants but did include going to see movies, bowling, and class fees for crafts classes I take), cleaning supplies, and gifts (Christmas, birthday, wedding, anniversary and any other presents along with cards and wrapping paper).

We created a miscellaneous category because it’s hard to categorize some things like batteries, light bulbs, photo developing, ink and paper for our printer, parts to fix the leaky sink, potting soil, charcoal for the grill, a donation to a charity, a magazine, gym fee etc.  We thought about having a household category but decided against it because not everything I just mentioned fit into a household category so we still needed the miscellaneous category and because we wanted to have as few categories as possible so keeping track of a budget later on wouldn’t be so cumbersome.

We didn’t track our gasoline expense, mortgage, insurance, utilities, or credit card payments in the “spending diary” notebooks we used.  Those bills we were either paying online, paying with a debit card, or writing out a check so we already had a history of exactly how much we were spending on each of those things.

We also didn’t create a budget before our “spending diary” tracking.  We wanted to see where our money was going because it felt like it was flying out of our pockets.  I remember looking in my wallet a lot of times and wondering where all my money had gone.  That meant we spent like normal during our tracking period kinda.  After the month was up and my husband and I sat down to see how much we had spent and what we had spent it on we both admitted there were things we didn’t buy because we didn’t want to have to write it down (and no it wasn’t because we wanted to buy porn! – at least I didn’t).  For example, I love to buy books and magazines because I really enjoy reading.  But I never realized how much I was spending on them.  Once I started writing it down I started to become alarmed at how much money I was forking over for that reading material and by the end of the month I was already willingly cutting myself back.

My husband’s only shock from his spending journal was the amount of money he fed the vending machines at work for bottled water, soda, chips and candy bars. Hitting the vending machine for a beverage and snack a couple times a day doesn’t seem harmless (it’s just some quarters and dollar bills, right?) but added up over the course of a month it came to close to $100 for my husband and all he had to show for it was a few extra pounds on the scale.

Once we had our month’s worth of spending in front of us in black and white it was easy to see why we always had more month than money and why our credit cards got a major workout.

We were to the point of knowing how much debt we had and how much money we were spending.  The next step we did in starting to get out of debt was set up a budget.  That will be the next post in my “How To Get Out Of Debt Series.”

So do yourself a favor and keep a spending diary.  We wrote our spending in small notebooks we got 2 for a $1, but you can use whatever you want whether it’s a notebook, plain paper, your PDA, or the back of napkins.  How you keep track of the spending information isn’t important; doing it is.

Remember, you will only need to do this one time, whether it’s for a week, 2 weeks, or a month.  Then you’ll be ready to set up your budget.

Don’t wait any longer.  Start today!

Just so you’re prepared it may be agonizing slow…like watching paint dry on a humid day.

But before you can start getting rid of it you have to know how much you owe.

That’s step 2 in getting out of debt.  Most people who have a lot of debt don’t know how much they owe and don’t want to know because writing it down and seeing it in print will literally make them feel ill (as in “I’m going to puke all over that piece of paper right now” – gross but that was exactly how I felt).

I used to live in a constant state of denial and avoidance about my bills.  I wouldn’t open my credit card statements and did my best to be as far away from the house as possible when my husband was paying bills because I didn’t want to face him because I knew he would be justifiably angry when he saw them.  I would even sometimes pretend I was really sick so my husband would feel too guilty to yell at me.

My favorite response though was to cry and promise to not do it anymore (a promise I knew deep down inside that I had no intention of keeping).  I did some pretty awful things to avoid talking about the debt I was piling up.  It was irresponsible, juvenile, and a completely rotten way to treat my husband.

When I finally sat down with my husband and wrote down every penny of debt we had, and then added it up, I truly did literally start to feel ill.

But in order to pay off that ugly debt a person has to know how much there is.

So grab a pencil and piece of paper, and then go get all your bills from wherever you have shoved them so you didn’t have to look at them.  Open each bill and on that piece of paper write:

- The name of each creditor that you owe money to

- Total amount owed

- Minimum Payment

- Due Date

If you want you can also write down the interest rate of each bill.

Then add up all your minimum payments.  That’s the bare minimum you need each month to start getting rid of the debt.  But you’ll need to pay more than the minimum if you want to get the debt paid off in a reasonable amount of time.

To get enough money to pay those minimum payments plus as much extra as possible, do whatever you can to cut expenses and increaase your earnings.  It’s also a great time to sell anything you don’t need and to immediately use the proceeds to help pay a bill (not to go shopping for more stuff).  Sell whatever you can and be like Dave Ramsey says, “Sell everything but the kids.”

In step 3 I’ll talk about that 4 letter word – budget.  (Yes I can count.  Yes I know it’s more than 4 letters long.  But mentioning the word “budget” to some people causes a look of pain so severe to cross their face I wonder if I’ve just cussed them out without realizing it.)