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How to Budget
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 store cards, the regular monthly installment
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.
by Stuart Laing
Copyright (c) Get Out Of
Debt
Stuart
runs a website dedicated to helping people
www.icanhelpyougetoutofdebt.com get out of
debt. So if you want to improve your financial position, visit
www.icanhelpyougetoutofdebt.com" for free,
impartial information on how to
www.icanhelpyougetoutofdebt.com/reduce-debt.php"reduce
debt.
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