How to Budget
I've been in the game for a while now, and I see that most
people follow the same road which gets them deeper and
deeper in debt. It is not because they are not trying hard to
get out of debt, but it is because they are trying too hard to
get out of debt.
The first rule to this game is do not worry about what the
interest rate is. Sure it is nice if there is something you can do
like move that debt to someplace with a lower interest rate,
but most of the time that is not the case. Most people are
trying to pay multiple debt payments, and spreading out all of
there disposable income to pay down the debt leaving no
money for emergencies. This is a viscous cycle that will result
in climbing debt.
So how do you budget debt? In the beginning, you should
figure out the maximum payment you can consistently pay to
debt every single month. Then cut that number in half and put
half of that money in your savings account. I know you want
to pay the full amount to your debt, but if you continue to do
that you will never save a dime, and your debt will always
grow. It is just a fact that you will learn if you already haven't.
It seems like a good idea not to pay that interest you owe, but
if you don't save, then you will always borrow, and the credit
companies win the game making you a slave to your debt.
Your goal should be to save a full months salary in savings,
but at minimum you should at least have a half months salary
in savings while you are working to pay down your debt, once
your reach that goal, then you can apply anything above that
too your debt so you can pay it off as fast as possible.
In a sense, you are creating your own 0% intrest credit
card in which you are paying yourself back instead of
giving your hard earned money to the bank.
That is a quick lesson on paying off debt, but also make sure
when filling in the spreadsheet to give yourself enough spend
money. You want to get to a point of not using a credit card at
all. In this system, you will have a bank account just for spend
money. So you still will be able to make your purchases with a
debit card if you do not like to use cash. If you find that it is
necessary to use credit because you are short on cash then
you should budget more funds to your spend money. It may
seem like a good idea to pay as much as possible to the debt
on your credit cards but if you continue to use them you will
not make progress in paying them off. So it is better for you to
pay less on the debt, and stop using the credit cards.
Do not be discouraged easily. It takes time to adjust to a
budget. You will make mistakes, and you will pay for them,
but keep focused on your goals. Over time as you pull out of
debt you will see the full benefits of paying yourself first.