How To Live Debt Free Forever..
FOLLOW THESE SIX STEPS AND WATCH YOUR CREDIT AND LIFE GET BETTER
Now that you’ve reviewed some of the personal reasons you’ve found yourself in debt, and taken some drastic measures to attack your debt, it’s time to develop a plan to determine where all your money is going, and develop a healthy financial strategy. You must be able to account for every penny you spend each month. Don’t worry, you won’t have to cut your spending yet. Here’s a simple method to develop a plan which may fit your comfort zone.
Take a sheet of paper, and write “Master Budget” at the top. On one side, list all your relatively fixed expenses (mortgage/rent, telephone, electric, water, gas, car, credit card minimums, etc.) Better yet, if you have a smart phone, there are tons applications online you can download to track your expenses and make a budget. A nice thing about using a smart phone is that you always have it with you.
Now comes the tough part. You must estimate how much you spend on various expenses like food, eating out, entertainment, stuff for the house, school, clothing, car repair, gasoline, etc. If you have old receipts, you can use them as a guide for real expenses.
Track all your expenditures for one month. At month’s end, total each category, and you’ll know exactly how much you spend on everything. If you’re not using a smart phone application, you’ll need to carry your budget notebook where you go. Carry this notebook with you wherever you go. Be very detailed on your categories. For example, one category might be “Eating Out.” Under this heading, write down the date, description, and the dollar amount for each time you eat out.
No matter how you do it, tracking your expenses allows you to see exactly where all your money is going. If you don’t know where your money is going, how can you expect to control it?
After you’ve totaled your categories, transfer them and their respective expense totals to your “Master Budget” spreadsheet.
List your take home income after taxes on your “Master Budget.” You might want to develop two different budgets based on your two pay periods. Should you pay the phone bill on the 1st, or would it be better to pay it on the 15th? What I find is that one pay period usually has a tighter budget than the other because you have to pay the bigger bills like your mortgage, rent, car payments, etc.
Now the challenge begins. Balance your income and expense categories, so you stay within your budget. Leave yourself a $200 cushion in your account. Take a long hard look at your expenses and see how you can reduce them. Let’s look at the category of “Entertainment.” which may include dinners out, movies, movie rentals, plays, etc. Let’s say you’re currently spending $75 per weekend on eating out and entertainment. That’s $300 per month. Why not only spend $100 and take $200 to make a larger payment on one of your high-interest credit card bills?
You may be shocked to realize how much you spend on little things. For example, if you spend $2.00 per day on gourmet coffee, you spend $40 per month just on coffee. Why not buy a nice coffee maker, and make your own, or at least have coffee out only once or twice a week? You’ll have to play around with the amounts you set for your expenses categories. You don’t want to completely cut out your fun. Otherwise, you’ll give up on your budget completely. Cut back a fair amount, and see how it feels. Adjust as you go. Ask yourself questions like:
ASK Yourself These Questions?
- Could we sell our home and buy or even rent a smaller place until we get back on our feet financially?
- Should we move to a different area where housing is less expensive?
- Do I really need to buy premium gas?
- Why not wait and rent a movie, instead of paying $10-$12 to go to the theater?
- Do I really need all those magazine subscriptions?
- Do I really need those movie channels? Could I live without cable TV?
- Do I really use my bottled water service? What are some cheaper alternatives?
- Do I really need a new dress, suit, purse, jewelry this month?
How you answer these questions all depend on how quickly you want to get out of debt.
By now, your Master Budget should list every category where you money goes. When you start living out your new budget on your the next pay period, enter into your spreadsheet (paper or electronic) the individual amount you have allotted for each category at the top of its own page. Think of each category page as a mini-account log. Every dollar you spend must be categorized and deducted from its appropriate category account balance.
If you’re recording expenses in a notebook, remember to carry your notebook with you everywhere. If you’re doing it on a smart phone, you will probably have your spreadsheet with you at all times.
When you get to zero in one category, you can’t spend any more in that area! However, what you’ll find is that you have other categories that have money left over at the end of your budget period. You can roll these amounts over to categories you’ve zeroed out, or better yet, use those extra dollars to hammer away at your debt. Revisit your master budget and adjust it accordingly.
I hope these tips have encouraged you to ACT. Good Luck on pursuing financial freedom!