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How To Budget
By: Stuart Laing
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:
Stuart runs a website dedicated to helping people get out of debt. So if you
want to improve your financial position, visit http://www.icanhelpyougetoutofdebt.com
for free, impartial information on how to eliminate your debts.
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