This week…How do we actually budget??
Is what’s coming in more than what is going out? How much is left over at the end of each month? You’ll have at least that amount to start paying off debt. We want to make that number higher and we will, but it’s good to see we at least have some extra money after expenses.
What if there is more going out than coming in? We’re going to fix that. That can happen when you start relying on credit cards and is probably at least part of the reason you’re in debt.
Yes you can charge things on your credit card, so you still continue to add up those miles, points, or cash back dollars, but transfer the amount of each transaction from your account to immediately pay off the amount you just charged to your credit card.
Now we need to keep track of your budget.
For the time being, the only budget in the minimum payments on your debts, the amount you’ve (hopefully) already been paying. If you haven’t been paying even the minimums, budget those amounts in now.
Also budget some money for non-essentials like going out to dinner or a movie, a few drinks at happy hour. Yes, your debt is an emergency, and if you were a robot, you would throw every dollar that wasn’t meant as an essential expense at it.
But we aren’t robots, and most humans can’t deprive themselves entirely for long stretches without going off the edge. Getting out of debt is like losing weight in that way. If you never allow any wiggle room for yourself, you can’t stick to the programme. So let some money in your budget for non-essentials.
Don’t Let It Happen Again
Now that you know how much is coming in and going out, make sure you live below your means.
Now Make Your Plan
You know how much is coming in and going out. You’ve reduced some of your expenses, and you have some extra money coming in. Check it every week to see how much you have left to spend in each category.
In our original budget, we only set aside the minimum on all of our debts. We need to work out a plan to get them paid. You can’t efficiently pay off debts by throwing money randomly at the balances.
There are two methods that will help you to do it quickly; debt snowballing and debt stacking.
Next week…snowballing and stacking
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