Debt can pull you down – no matter if you are an individual, a giant corporation or even a government. Avoiding debt completely insures that the financial discouragement will be less likely to darken your doors. But even if debt has already been established one key will break you free for life.
Many people talk about budgets, but developing a budget that you can and will follow will provide you that one key you need to break away from debt. No matter where your finances are today, finding a way to bring in more money than goes out will allow you to reduce your debt and even eliminate it altogether.
Developing a Budget
The first step in developing a budget to reduce your debt requires understanding spending. Take a week or two to write down everything that you spend throughout the day – including small purchases like gum to big purchases like rent and groceries.
After you record your spending you will need to evaluate those habits. Write out everything that you spend money on during the week and then total up how much you spend in each category. Now total all of the categories and multiply by four (there are just over four weeks in each month). Finally, add in all of your monthly expenses that might not have been included during the time period you were recording. You should now have a fairly accurate account of how you spend your money.
Now you need to total up all of the money that you make each month. Subtract the amount you spend from the amount that you make. If the spending number is larger than the income number you have just two choices:
Make more money. Get a second job, sell some items that you do not need or love or ask for more hours at work.
Cut spending. Figure up how much extra you need to make to pay off your short term debts (like credit cards). Determine to live without the extras for that many months. Reduce your monthly spending by cutting back on cable, memberships, and other non-essential spending.
The ultimate goal of your budget should be that you spend no more than 50% of your income on necessities (including home, car, utilities and groceries). You need to be saving and investing the next 25% of your income. The last 25% of your income can go towards your wants. Once you get debt under control you will find that you can live well within a balanced budget and probably even better.
Breaking free of debt will give you the ability to do things financially that you never dreamed possible before. Balancing your budget is the best way to make debt freedom a reality in your life.
Written by Peter “Van The VA Man” Brady who is A Veteran’s Administration Home Loan specialist based in Southern California who helps veterans get VA home loans and VA refinance loans.