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It's always a good idea to use a budget to keep track of your
personal finances, but it's vital when you're up to your neck in
debt!
The basic idea is simple. A budget just compares the income you
have each week or each month with the things that you have to
purchase.
Right, first you need to work out your total monthly income.
Include your income from all sources. This means wages, regular
overtime, bonuses, any benefits you claim etc. The figures you
use must be after tax, so count your take home pay instead of
your gross pay. If your income varies, it's advisable to work
out how much income you'll have at the start of each month.
Have you done that? Write the figure down.
In [month] my income will be..........
Now we're rolling! This figure is all you'll have to live on for
the next month, and take a chunk out of your debts.
Vital Expenses
Right, vital expenses first. And when I say vital, I mean
VITAL. So that includes keeping a roof over your head
(rent, mortgage, property tax, electric, gas etc) and putting
food on the table. In other words, things that will endanger
your life if you don't have them!
A few months down the line, this will show you how much money
you've spent on various items (such as food, rent, mortgage,
household bills), and allow you to identify the areas where you
can cut back.
Debt Repayments
The next item to deduct is the minimum payment that will be
required on your debts for the month. This is the amount that's
required to stop them sending you any nasty letters. This could
include your mortgage payment, the minimum amount required on
any credit or storecards, the regular monthly instalment of any
personal loans, car loans or student loans and the amount your
overdraft needs to keep your bank manager happy.
These two figures (vital living expenses plus minimum debt
repayments) will show you how much you need to spend each month
just to survive and keep your head above your sea of debt.
Now what's left? This will show you whether or not you've
overspent each month.
If there's nothing left after these basic costs, then you
position is much more difficult. All I can suggest you do is to
look at how to increase your income, or get some professional
advice on how to deal with your debts.
If you have anything left, this means that you'll survive
financially, for the next month at least. Put every single cent
that you have left over towards reducing your debts. If you
spend less than you earn every month, then you will eventually
pull yourself out of debt.
The further you strip back your spending, the faster your debts
will shrink and the less they'll ultimately cost you.
Here's a little tip to help you keep your spending low. Take a
sheet of paper and pin it up in a prominent place in your home.
The back of the main door is always a good place, because you'll
see it every time you go out. The idea is to start with a blank
sheet each month, and to write down every amount that you spend
over the course of the month. Keep a running total so that you
can see at a glance how much you've spent every month.
At the start of the month, you could fill in the figures that
you know in advance, such as your rent, minimum debt repayments,
council tax, etc. Then the rest of your vital living expenses
can be filled in as and when you spend the money.
Every time you spend something, add it to your running total for
that month when you return home. Then every month try to spend
less than the month before. Make it into a game. See how little
you can spend each month. Restrict your spending to things that
are absolutely necessary.
At the end of the month, the difference between your income for
that month and the total amount that you have spent is the extra
amount that you can put towards reducing your debts.
It's also a good idea to keep a running total of the amount that
you owe pinned to your door. Update the total at the end of each
month after you've paid your remaining monthly income towards
the debt. This will give you a visible reminder of what you've
achieved and when you still have to do.
Seeing your total debt getting smaller and smaller as the months
pass should give you that extra burst of motivation to keep
going.
About the author:
by Stuart Laing
Copyright (c) Get Out Of
Debt.
Are you tired of being in debt? Do you resent the large
repayments every month? Visit www.icanhelpyougetoutofdebt.com
for free, impartial information on how to red
uce debt.
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