For some of us, the simple utterance of the word “budget” is enough to send us into a panic attack. But having one is essential not only for getting out of debt but also for staying out of debt once it’s all paid off.
Successful warriors have a battle plan prior to heading into the trenches. Getting out of debt is certainly tough. But it is a rewarding battle once we achieve our ultimate victory.
Before we sit down and draw up our battle plan and begin commanding our money where to go, we need to gather some information. So grab a calculator, a pen, and some paper.
If you’ve never done a budget before, or if you have been ignoring/neglecting a previous one, the first thing you are going to need to do is to write down a detailed account of last month’s income and expenses. For most of us, it’s as simple as jumping online to download our monthly statement or maybe a quick trip to the bank.
Make sure you are being completely honest with yourself. Don’t forget about those late nights when you called out for a pizza delivery.
Don’t worry about how bad it is. Most likely, if this is all new to you and you’ve never tried to tackle your finances, it’s going to be very bad. That’s okay. Just remember, though, if you spent $2000 on food, write it down! You are the only one who has to see it. Unless you are married of course, in which case you need to do this together.
For most of us, this step alone is both a shock and a huge motivator to change. There is a very strong chance it’s going to be very unbalanced when we build the actual budget. Don’t worry. We will be discussing ways to trim those expenses down in our budgeting money tips page. But we will get there soon enough.
ORGANIZE YOUR LIST OF DEBTS
You need to write down your list of debts. When looking this up don’t just get the minimum amount due. Try to find the interest rate and total payoff amount as well. Most credit card statements will tell you approximately how long it will take to pay it off if you only pay the minimum payment each month. Write that down as well. We will use this information when we are determining our best payoff strategy.
DON’T FORGET ABOUT THE YEARLY EXTRAS
One thing we tend to overlook is all of the holiday and special occasion shopping. Christmas, birthdays, anniversaries, Valentine’s day, etc. Guess what? They happen every year. So you also need to write down a list of people that you buy for and how much you plan on spending on them for each occasion.
Car maintenance, long-term prescriptions, property taxes, auto and homeowners/renters insurance (especially if not paid monthly), need to be a part of it as well. So don’t forget to plan ahead.
TOTAL EVERYTHING UP
Add it all up for each of the following items and you’ll be ready in our next step to create your very own well-organized budget!
- Income (If more than one job or source keep them on separate lines, but total it all up)
- Rent/Mortgage Payment
- Electric Bill
- Water Bill
- Gas Bill
- Sewer/Trash Bill
- Phone/Cell Phone Bill
- Food and other Living Expenses
- Online Streaming Services (Netflix, Hulu, Spotify Premium, etc.)
- Debt (Credit Cards, Auto Loans, Lines of Credit, Personal Loans, etc.)
- Holiday/Birthday Shopping (Yearly total for all, then divide by 12)
- Auto Insurance
- Home Owners/Renters Insurance
- Property Taxes
- Medical Bills
- Car Maintenance
- Gym Memberships
- Travel Expenses
- Vacation Planning
- Anything else you are regularly spending money on
REALITY CHECK TIME
Simply add up your income and total it, then add up all of your expenses and total it. Now, take a deep breath and subtract the total expenses from the income. Are you surprised? Shocked? Is it as bad as you thought it would be? Worse? This is why budgeting and planning are both absolutely critical to overcoming the debt trap and preventing us from ever being caught up in it again!
YOU ARE READY TO BUILD YOUR FIRST BUDGET!
The next step is to build an organized version of all the information you just collected and create your very own battle plan!
How did it turn out for you? This is the beginning of the journey to freedom. Let me know what you found in the comments.