19th century check
One truth I’ve learned from spending my entire adult life with debt is that you cannot get out of debt without a budget.
It took me this long to learn this simple fact—which is why I’m still in debt. Now, I say “you” meaning most average folks can’t get out of debt without a budget. If you happen to have oodles of loose cash and think you can get out of debt without a budget….well, shame on you for getting in debt in the first place, you should know better.
For the rest of us real folks who didn’t manage our money and didn’t act our wage, it’s time to use a budget to manage our resources and avoid the plastic–and other forms of creatively financing a lifestyle we can’t afford.
Step 1. Let’s build a budget.
Get a cozy spot, a cup of coffee and a favorite CD and settle in for the long haul. You need to tame your money! (Trust me on this, it’s worth doing after the kids go to sleep if you’re lucky enough to have little ones at home like me).
I highly recommend using an online system (it saves you a load of data-entry on a recurring basis which will help you stick to your system). I use Mint.com, but other great systems include GreenSherpa (there is a nominal subscription), Wesabe, Geezeo and Quicken. Mint is free, and it works with my small community bank, which is why I’m staying there. (I reviewed and compared a number of these systems over here if you’d like more ideas of which one to use).
Download and classify your transactions for the last 90 days and see what your “budget” has been. Do not skip this step—if you do, your budget will not work and you will revert to “the old ways” and we know those are why you’re reading debtkid.com and not Forbes.
Step 2. You might want to trade your coffee for a beer at this point. You’ve got to face some brutal facts!
Chances are good that you’ve been overspending. Go grab the bin of “filing to be filed” and find those utility bills. Figure out what you actually need to pay in all your expenses every month and write ‘em down—and set them as your budget goals. Give yourself a budget for food, (in our house, it’s $25 per week, per person) Mint.com has a great system that sends me a text message when I go over my budget in any category. I also check my “status to date” every other day.
Step 3. Subtract your actual budget from the amount you’ve spent each of the past three months
The balance you see is your progress potential. The money you could be applying towards your debt, but you’ve been spending in less focused ways.
Step 4. Determine if your debt condition a symptom of insufficient income, or excessive lifestyle
Either way, you need to cut your costs to get to get out of debt faster. Ultimately the answer to the question above will determine just how painful that process is going to be. In my house, I did the math again last night (repeating my exercise of six months ago) and determined that we can be entirely debt free by the end of this year if we give up eating out entirely. We’ll be having a family meeting to determine if we want to be out of debt that bad (I do!).
Step 5. IMPLEMENT
Before you spend, you must consult the budget, each and every time. You must revisit it frequently to determine if you have enough money to meet your needs, and you must adjust it (I adjust quarterly and completely revisit every six months). At the end of the month, review your spending reports, your budget, and how you spend to determine where else you can find income or opportunities to reduce expenses. Remember that if you’re over budget in one area, you’re going to have to borrow from another area (of the budget, not the wallet). Need an extra tank of gas that isn’t in the budget? You might have to skip Friday’s regular pizza orders and do some home-made rice and beans, but that should fill up your gas tank at the end of the month.
I would buget yourself in a little leway each month for the first three months–an “emergency” budget item until you get the hang of sticking to your budget. Earmark it for something you really want if you don’t end up using it–or pay off a little extra towards your debt. Any change of habit, especially one that ads such a rigid layer of discipline is bound to be hard to stick to. Don’t beat yourself up if you hit some bumps in the road.
A caveat to this program is that you must stop using debt. That’s right—plastic surgery. Cut them up, freeze them in ice, or mail them to your Aunt Bertha in Milwaukee, but get them away from the WalMart or the McDonalds, or the Coach Store—whatever your vice is. Using a credit card for convenience or miles while you’re in debt elsewhere is like death by 1,000 cuts. I’m convinced now after years of trying, that cold turkey and just chopping those buggers up is the way to go.
Watch for the next post budget triage—we successfully whacked $1,500 a month out of our budget and are actively whacking out more each month! I’ve got a number of creative ways to stop the bleeding, and I’ll share them all with you here!
Image credit: The Vintage Moth
