In order for you to start putting extra money aside to pay off your debt, you must first gain control of your monthly spending. After all it is your spending habits that have led you into debt in the first place. Before each month begins, you must sit down and allocate every single Dollar of your income to a particular spending category. Every Dollar has a purpose. You must create what is known as a Zero Balanced Budget. What this means simply is that when you total up your income and subtract all of your expenses, the balance is $0. Every single Dollar of your income must be put to work for you, there is no spare money. Not even a spare cent!
When completing your budget, you must allow for every single area of spending. If you do not then you will not have money for it when it comes up. For example, if you do not include money for tires or car servicing, you will not have the money for them when they are required. It is easy to account for the general monthly expenses such as food, lights, heat, mortgage and so on, but you must also include a category to cover annual expenses such as clothes, car maintenance, insurance etc. My own personal budget is created using EXCEL, but you can simply use a pen and paper if you wish.
OK you have now created your budget but this is only half the plan. If you do not stick to your budget then it is all but pointless. You need to record every single penny that you spend on a daily basis. You can simply jot it down on a piece of paper or notepad or you can use any number of smart phone apps. I personally use an app called Spending Tracker and it allows me to export my spending record to EXCEL. Last point on this is to record your spending as soon as possible after you spend the money or you will forget.
When you have created your first budget and recorded your spending for one month you will be ready to adjust your budget. It is extremely unlikely that your first budget will go according to plan. If it does then you have not set it tight enough and you need to cut it more. Using your spending record, adjust your monthly expenses as required to get a more accurate budget. Keep doing this until you have developed a budget that you can live on and includes all of your spending requirements.
Once you find yourself following this budget process regularly and consistently, you will free up money to pay towards your debts. If you do not, then you have an “Income/expense gap” problem. I will tackle this in a later article. If you need any further help with budgeting or budget forms, please do not hesitate to get in touch.