Budgeting to keep out of debt
A small amount of debt, or even larger debts, do not necessarily mean you have debt problems, as long as you can afford the monthly repayments. By afford we mean that you are paying enough off to keep on top of the debt so that it is slowly being repaid or at least not getting any larger. If you are only making minimum repayments and the debt is slowly but surely increasing then you do have a problem.
Keeping out of debt, or staying out of debt after becoming debt free, is sometimes tough but always rewarding in the long run.
Budgeting makes sense for everyone to do. Even if you are comfortable and don’t worry about monthly bills, every penny saved is available to be invested for your future. After all, no-one knows what the future holds for anyone and, if the worst should happen, it’s best to have something to fall back on.
That doesn’t mean that everyone should be scrimping and saving for a far off day that may never come. It’s just a matter of balance. Balancing enjoying the present with making sure you have a decent future too as you get older.
Budgeting means keeping track of your income and expenditure and ensuring that the former exceeds the latter. One way to do this is to use your computer. There are many free programs that allow you to keep track of your accounts. They work in a similar way to Microsoft Money but without the price tag (NB. Debts 2 Go always recommend getting things free wherever possible – that is a sure fire way to help your budget!).
By entering in each and every transaction into your program you will be reminded where your money is being spent. You can also specify a category for each item so that at the end of every month you can calculate your expenditure at the click of a button. Do you know how much you curently spend on groceries every month, for instance? Many people have a rough idea but are shocked when they see the actual figure – all of those £5 and £10 impulse shops add up.
This is a good place to start – stopping all impulse purchases. Plan your spending in advance, go out with a maximum limit and stick to it. It might be difficult to start with but it will soon become a habit. It’s amazing how many people you see in the supermarket without a shopping list, ignoring all of the special offers and just cramming their shopping trolleys full without a thought. But then it’s amazing how many people are struggling with debt too – perhaps there is a correlation.
At the end of the month, when you receive your statements, you can double check all of the entries against your online records. This reconciliation also helps with ensuring that you catch any fraudulent or mistaken payments quickly.
Cutting out unnecessary spending will reduce your outgoings and bring your budget under control. This is the first step for people with smaller debts – see if you can balance your budget yourself. If you cannot, perhaps because of reduced earnings for instance, then seek free professional debt advice as soon as possible.
Even if you have larger debts, it is still possible to sort out your budget so that you increase your monthly repayments to the highest interest debts, such as credit cards, getting them paid off as quickly as possible as they are the biggest drain on your finances. If you have debts over and above £5,000 it is possible to get a debt solution that not only helps you repay your debts but also allows you to write a large proportion of them off. Writing off some of your debts means that you immediately reduce your debt problem before embarking on a solution.
One Ping