Budgeting Your Way Out Of Debts
_Getting out of debt is a common New Year's Resolution. Like most of the New Year's Resolutions that people make at the start of the year, it's one that starts out well, and then founders. Just like going on to a diet, it's best to gradually work your way into budgeting your way out of debt.
Start small – just like a new diet, you'll make changes that are sustainable if you do it in stages. The first stage is to budget to pay $30 extra each month on your highest rate credit card. The aim is to pay down the principal of what you owe as quickly as is possible, then retire the card.
Once you've paid off the highest rate card, allocate whatever its minimum payment would be as extra on the next highest rate card, and take the extra $30 a month and start saving it. There are a variety of saving vehicles out there, but we're advocating the very basic one – the savings account at your local bank.
As you pay down your credit cards, continue budgeting half of what you'd pay for paying down minimums on older cards to pay down the new ones, and add the remainder to your savings plan, until you're paying your monthly balance off each month in full.
The ultimate goal is to retire your debt and, once it's retired, have a regular habit of savings. After you get in the habit of savings, the aim is to live on roughly 90% of what you earn and save the remaining 10% for big purchases.
Now, the tricky part for most folks is getting that extra amount to pay, above and beyond the minimum payments on the cards. The first step to doing that is to look over your monthly expenses; accumulate three months worth of receipts and look at what you're really spending. This isn't a time to feel guilty about what you're spending money on – it's time to be frank about what you spend and why.
Once you've got the three-month tally set up – that's rent, utilities, groceries, and car payments, it's time to look at what else you spend money on. Most people who work for a living have a habit of eating conveniently. Most fast food meals are $6 to $7 each. Times five meals a week, and that's $30 to $35 per week. Just taking your lunch in to work one day a week can free up most of the $30 a month needed to start this program.
If you're willing to look a little deeper into fiscal discipline, try this: Dedicate the halftime show of the football game to making a week's worth of lunches – make a batch of soup and freeze it, or make a casserole and freeze it in meal sized portions – and take that in to work with you. In addition to being healthier for you, it's easily going to save you $25 to $30 per week.
Start small – just like a new diet, you'll make changes that are sustainable if you do it in stages. The first stage is to budget to pay $30 extra each month on your highest rate credit card. The aim is to pay down the principal of what you owe as quickly as is possible, then retire the card.
Once you've paid off the highest rate card, allocate whatever its minimum payment would be as extra on the next highest rate card, and take the extra $30 a month and start saving it. There are a variety of saving vehicles out there, but we're advocating the very basic one – the savings account at your local bank.
As you pay down your credit cards, continue budgeting half of what you'd pay for paying down minimums on older cards to pay down the new ones, and add the remainder to your savings plan, until you're paying your monthly balance off each month in full.
The ultimate goal is to retire your debt and, once it's retired, have a regular habit of savings. After you get in the habit of savings, the aim is to live on roughly 90% of what you earn and save the remaining 10% for big purchases.
Now, the tricky part for most folks is getting that extra amount to pay, above and beyond the minimum payments on the cards. The first step to doing that is to look over your monthly expenses; accumulate three months worth of receipts and look at what you're really spending. This isn't a time to feel guilty about what you're spending money on – it's time to be frank about what you spend and why.
Once you've got the three-month tally set up – that's rent, utilities, groceries, and car payments, it's time to look at what else you spend money on. Most people who work for a living have a habit of eating conveniently. Most fast food meals are $6 to $7 each. Times five meals a week, and that's $30 to $35 per week. Just taking your lunch in to work one day a week can free up most of the $30 a month needed to start this program.
If you're willing to look a little deeper into fiscal discipline, try this: Dedicate the halftime show of the football game to making a week's worth of lunches – make a batch of soup and freeze it, or make a casserole and freeze it in meal sized portions – and take that in to work with you. In addition to being healthier for you, it's easily going to save you $25 to $30 per week.