Get Out Of Debt
How to put together a Personal Finance Budget
How to put together a Personal Finance Budget
There are simple, common sense steps you can take to get out of debt.
Unfortunately, like losing weight, they are not necessarily easy or painless - but if you stick to them, you will become debt-free.
Stop Borrowing Money
The first step to escaping debt is to stop borrowing. Simply put, the more you borrow, the more you will owe. You can't borrow your way out of debt, but must instead pay off your existing debts while not borrowing additional funds.
If you are a typical consumer, you engage in a lot of borrowing by making purchases with credit cards. You should try to break this credit habit. Most credit card companies and store cards will reduce your credit limit if you ask them to do so. (The credit card company may try to talk you out of lowering your credit limit - because they make the most money when they let you borrow more than you can afford.)
Because credit cards cause such a high degree of difficult debt to manage, you need to try and stop using them, and get your spending under control. Do not carry your credit cards. Switch to a debit card and leave the credit cards at home, or better yet, cut them up. When you cut them up write a letter to the credit card company requesting that they cancel the card. Send a copy of that letter to the major credit reporting companies.
Budget Your Income and Expenses
Map out your income, expenses, and payments on your existing debts for a typical month, and create a balanced household budget. Remember to budget some money for emergencies - if you are fortunate enough that no emergency occurs, you can either save the money for future emergencies or (if you are afraid that you will spend it) use it to pay down some of your debts.
If you are paying credit card debts, budget to pay more than the minimum required monthly payment. Minimum payments are usually set in an amount such that, if you don't make an additional payment toward the credit card balance, you will never pay off the debt. Usually, your credit cards will carry the highest interest of any of your debt, and thus it will make sense to pay them off first.
If you cannot figure out how you can possibly pay your bills and still have enough money to survive at the end of the month, you may wish to consider using a credit counselor or a debt management service. You may also wish to consider the possibility of a debt consolidation loan.
Stick To The Budget
For many people, this is the hardest part - it is easy to create a theoretical budget which allows them to get their debts under control, but impossible to resist the impulse purchases which break the bank each month.
You can help avoid temptation by cutting up your credit cards and instead making your purchases with cash. As previously mentioned, you can also have your credit limits lowered.
A budget is basically a comprehensive plan that will help you to cover all your expenses you’re your current income. If you are able to plan a good budget then it can provide you with money on a regular basis for any uncertain event. One of the key factors governing home ownership is budgeting.
Here are some tips for creating budgets and maintaining them:
1. You need to have complete information regarding the due dates of your bills
2. You should have a fair idea regarding the kind of money you spend monthly
3. You need to plan for all your periodic expenses like property taxes, car insurance, homeowners insurance etc.
4. When you are drawing a budget, you need to keep away from making impulsive purchases as it can completely deflate your budget.
5. Mention the requirement of regular home maintenance and internal or external repairs in your budget. According to experts, you should ideally keep 1% of the purchase price of your house for any types of repairs or for annual maintenance.
6. Adhering to your regular savings plan is critical.
7. Make note of your fixed expenses and keep some percentage away for any emergency or variable expenses
8. Keep track of all your financial statements and this should include your income statements, bank statements, utility bills etc.
9. Before creating a budget, make a note of the various sources of income especially if you are self-employed.
10. Lastly, create a comprehensive list of all expenses being incurred in the last few months. This will help you to create a sound budget.
It can often require a little work to maintain a budget and there are times when it may go out of control. If your budget goes out of control then you will need to stop there and then and formulate your budget all over again. This time include the expenses or the reasons that forced the budget to break.
To follow the right course and to maintain your budget, you need to keep tabs. keeping regular tabs of your expenditure helps. You can keep weekly or monthly tabs depending on feasibility and what is comfortable.
If you are able to maintain and follow your budget then it will be easier for you to even payout your loan requirements. Today, the market is rapidly changing especially with peer to peer networks and social lending communities appearing on the horizon.
These networks charge lower interest on loans and the main aim is to make the buyer as well as the lender to feel responsible towards each other. Lending hubs have appeared in the UK and the US and there are a couple of community borrowing hubs expected to capture the Australian market soon.
If you need help creating a workable budget or sticking to the budget, as previously suggested, you may wish to work with a credit counselor or a debt management service. If your situation is beyond their help, you may have to consider filing for bankruptcy.