Manage Your Debt With A Simple Budget

The Budget And Debt Management

First Published Date : March 2, 2011

When you are putting together a plan to manage your debt, one of the most important pieces of making debt management successful is the budget. A budget is so important in debt management that without it, there is little chance of success.

A budget is a simple tool that goes a long way because it shows you how much you are spending, how much you need to save, how far you are to your goal, and most importantly, how much you are allowed to spend.

To make a budget, it is actually a very easy process. First, you should look at how much you are spending so you can create a realistic budget. This is important because if you do not know how much you spend, how will you know how much to allocate. If you assume you spend $150 on food in a month, when you actually spend $500, then budgeting only $100 will doom you to failure. So, it is important you spend an entire month collecting receipts that you can then use to check how much you are spending.

You may not think that spending three dollars a day on a latte is much, but when you spend $90 a month, and $960 a year, well that can add up to a lot of wasted cash.

The next thing you need to do is determine what you can eliminate from your expenses. Find anything that is not essential and cut it out. Once you do that, you can then put together your budget.

When writing up your budget limits, make sure you do not set them too low, or too high. Find out how much you spend on average on bills and food, and go with that. Cut out anything you don’t need and cut back on anything you can.

Now, once you have done that you will be able to see how much you are saving each month. If you are managing your debt, depending on the size, you will want to ensure that you get as much of the debt paid off as possible. Shoot for saving $500 or more per month on your expenses by sticking to your budget and you should be well on your way to paying off your debt. Of course, even paying minimum payments until you can pay more will ensure your debt does not grow at all.

Now, the most important thing to remember with your budget is you need to keep it flexible. Things change over time and you may need to adjust the budget to reflect higher expenses (heat in winter, etc), higher pay, new income and more. If your budget is rigid and never changes, it will become obsolete with your needs. Every six months or so, look at your budget and rework it.

By just having a budget, you are well on your way to fixing your debt and practicing proper debt management. That way you get out of the dreaded debt spiral.