Budget to Get Out of Debt and Stay Debt-Freet
The Single Most Powerful Tool to Increase Personal Wealth
Jun 20, 2009
A budget is the single-most powerful tactic for getting out of debt, staying debt-free and building personal wealth.
Create a Realistic Budget That is Doable
Purpose every dollar (including some buffer). Put as much money as possible towards paying down debt and having an emergency fund, but allow for a little bit of reward. Only the truly dedicated can live with no social/recreational activities for the amount of time it takes to become debt-free.
Understand Assets and Debts
To understand the financial situation, tally income and expenses. Detail ongoing, fixed monthly expenses such as rent or mortgage payments, and then add variable expenses that are “must-buys.” These include food, gas and medicine. Next, set up categories for savings (prioritize building an emergency fund), unexpected expenses and- if enough remains- entertainment.
Subtract total expenses from monthly net income (the amount left after taxes and other paycheck deductions such as health insurance and 401(k) contributions) to find cash flow. If the bottom-line cash flow is negative or does not help achieve your short- and long-term financial goals, immediately commit to paying off debt. Make it a goal for total monthly debt payments to equal no more than 15 percent of monthly income.
Track Expenses
Use a software program like Quicken or the like. Categorize expenses and pay attention to the report that can be created on how much is spent in each category making it easy to spot problem areas (eating out, clothes, gas), then target those for reduction. Always know exactly how much money is in the checking account. Make sure to budget for gifts, entertainment and whatever other things people commonly spend too much money on and don’t like admitting.
Be Realistic
If the accumulation of debt started three or four years ago, realize that it will probably take more then three or four years to get out of debt and stay out of debt.
Read also the big picture article focuses on the 3 strategies for Getting Out of Debt:
- Spend less than the paycheck!
- Make more money
- Get on the same page as spouse or partner
The final article has three more debt-free strategies and strives for a positive mind-set: building your personal wealth.
- Elect Plastic Surgery: Cut up the credit cards.
- Build up an emergency fund.
- Focus on wealth rather than debt.
In addition to the companion articles noted above, How to Get Out of Debt, Stay Out of Debt, and Live Prosperously by Jerrold Mundis has some great information.
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