Having a budget is a great way to track your finances and keep yourself from overspending. It also gives you freedom. By keeping tabs on your spending you can confidently make choices about future purchases. But how can you start a budget if you’re already in debt? The thought may seem overwhelming, but it’s possible to budget to pay off debt.
Make A List
Start your budget by determining your monthly income. Your salary after taxes, any child support or other stipends – everything that brings you money. Next, go through your monthly expenses.
Write down everything you absolutely have to pay for – rent, utilities, gas, groceries, student, loans, etc. Other expenses like subscriptions, cable TV and dining out shouldn’t be on this list.
Look At Previous Spending Habits
Once you’ve listed your necessary expenses, examine your most recent purchases. Go through your bank statements and old receipts to get the most accurate picture of your spending habits as possible. Now list all your non-essential expenses based on the analysis you did.
Write down your necessary expenses with how much they cost you each month. Do the same for the non-essentials. If you’ve added everything up and it exceeds your income, then you need to make some serious cuts. Take a cold, hard look at each expense and ask yourself if it can be realistically reduced.
Do you really need a Netflix account right now? Could you shave some money off your grocery bill by looking for coupons and sales? Making a budget to pay off debts requires reevaluating what you consider a need or a luxury. Unless you’re willing to make a few small sacrifices, your debt isn’t going anywhere.
Establish A Buffer – Build Your Savings
Not only should your expenses not exceed your income, you should have at least a 20% buffer zone. That means 20% of your income should be leftover each month. This number seems pretty high, but it’s one you should shoot for.
Therefore, consider taking a second job or doing a side hustle to bring in some extra income. Maybe you’ll have to find a roommate to split housing costs.
These may not seem like comfortable options but the road to paying off debt starts by living within your means. It’s okay to make tough decisions and put off having the lifestyle you want to improve your financial situation.
Keep A Rainy Day Fund
Paying off debts relies on having savings. Emergencies can happen. If you have no money saved up, the results can be catastrophic. Try to start an emergency fund before you create a budget to pay off debts because you never know when you might need it.
Check Your Budget Frequently
Use budget apps or websites to keep track of your spending. In most apps, you can plug in your income along with your expenses and log each purchase you make. Keeping track will not only show you how much money you have left each month, but it might also help you reform spending habits. Furthermore, before making any purchase, get into the habit of checking your budget app first.
Final Thoughts On Making A Budget To Pay Off Debt
Too much debt can ruin your life. Take control of your financial situation and start a budget to help yourself pay off debts. It seems daunting, but all you have to do is get started.