Tips for Creating A Budget

If you are starting to struggle under the weight of your debts and payments, making yourself a household budget is a good idea.  It will give you an idea of where you stand, financially, as well as allow you to figure out if the lifestyle you are leading is sustainable.  It’s not the most appealing task and if you are not relishing beginning, you are not alone.  However, it is important to figure out the ratio between your income and your outgoing payments – being in debt is stressful and being in a situation where you are struggling to make minimum payments can quickly become impossible if you are hit with an unexpected expense, such as medical bills.

If you have a strong budget, you can decrease your debt levels as aggressively as possible, which will take some of the pressure off and eventually allow you to funnel money into an emergency fund (in case of, well, emergency) so that you no longer have a need for credit.  Using credit is just fine; very useful at times, but needing it isn’t so great.  The goal here is financial independence.  You need to understand where your money is coming from, how much you have in total and where it all goes.

1. Make a list of your income-

This should include every type of income you receive reliably – this means money that definitely comes in.  Sporadic payments from hobbies or odd jobs should not be included as these do not count as regular income.  Your budget should be something on which you can depend; not something dependent on wavering factors.

2. List your expenses- This should include fixed monthly expenses, such as mortgage payments or rent, any property taxes, any government payments such as child support, etc, as well as varying expenses like electricity/water bills or grocery shopping expenses.  Divide yearly expenses by 12 and work it out that way.  With the items that vary, it is important to overestimate – write down the maximum you would need to spend and budget for this.   For instance, if you usually spend $150 on groceries but sometimes you’ve been known to spend $200, write down $200.  If you spend less, the extra money can go towards paying off your debt.  When listing your current debts, for now, write down the minimum payments required.  Once you have finished, any extra money will be funneled back into these payments in order to decrease your debt as much as possible.

3. Calculate net income- Total up your income and expenses and work out how much money is left over.  This should be a positive number and you should put it all towards paying down your debt.  It doesn’t sound like much fun and, frankly, it isn’t.  But if you take a small hit in the ‘fun department’ of your life right now, it really will open you up to be a lot freer later on.

4. Adjust expense payments- If your net income turned out to be a negative number (i.e. you spend more than you make), you will need to make some adjustments to your expenses.  The first stop is usually the varying expenses mentioned above – you can adjust your spending on things like groceries, gas, hobbies, etc.  Other unnecessary expenditures can also be cut, such as your cable bill, cell phone bill, etc.  At this point, you should work things out on a wants/needs basis.  Things that are needs, such as shelter, food and bills are a lot less negotiable than, say, a gym membership or yearly summer vacation.

5. Review your budget every month- After the first month, update your budget to reflect what your planned spend was vs your actual spend.  If you went over budget, these are the areas you can work on to bring your spending down to a manageable level.
This budget should help you regain control over your spending and is a good habit to keep even after your debts are paid and things become easier to manage.  If you are in a position where your debts are just too high and you can’t even keep up with your basic necessary payments, you may need to look a bit further than a household budget to solve your debt problems.  Luckily, there are options.  Debt negotiation can be a useful tool in reducing your debt to manageable amounts with the least amount of damage to your credit.
Experienced debt negotiators will be able to speak to your creditors and negotiate your debt down to the amount of the lump sum you’ve been able to save; often 50% of your original debt.  After your debt is ‘settled in full’, you can begin to rebuild your finances and credit rating, using a household budget in the future, so you can avoid this situation happening again.