What I learned creating my budget:

In this post I will review some basic steps to getting organized and creating a budget.  I will outline why having a buffer in your budget is important to keep you motivated to become debt free and stick with your plan.

The first two steps of getting out of debt are pretty simple.  It is simple to get out of debt.  But not easy.

 

1.  Get organized:

Its nearly impossible to stay in debt if you’re organized.  For most people this means opening the credit card statements that are unopened in a box somewhere.

I started this process.  I read every credit card statement.  It had to be done.  By getting organized, I was able to Take Charge of my personal finances.  Once you do this, you wont need a personal loan or any debt consolidation to save you.  You will be saving yourself.

As I review my year end credit card statements, I see so many charges that I’ve cut out.  And I feel great about all the money I am no longer wasting.  But part of me is calculating how many thousands of dollars of money that just spilled out of my life simply by not paying attention.  Read more about the dumb stuff I bought last year.

 

 

2.  Create a Basic Budget:  Income vs. Expenses

It doesn’t have to be fancy.  On one side is all the income you have coming in.  And on the other side is ALL the expenses you have going out.  Every dime!  Which means you must open the credit card statements and really understand where your money has been going.

One of the advantages of this exercise is that it allows you to find areas of wasteful spending.  I was spending way too much on designer clothes.  (More on that here).

By creating a basic budget you begin to clearly see the financial picture.  And the good news is that if you don’t like what you see, then you can begin to make positive changes.  You are taking control of your financial life.

 

Relevant Articles:

44 Ways to Create Extra Income

Getting Results: How I Paid Off $17K

The Best Personal Finance Books

3. You can’t out earn your spending

This year, I finally realized that I need to:

• get more organized,
• budget,
• plan,
• and take charge of my money.

 

For most of my life, my plan was to “out earn” my spending   And I should add I am an excellent investor.  More on that here.

I realize now that it is impossible to “out earn” my spending.  I don’t think anyone can unless you are naturally frugal.  And I am not.  Spending was the reward for making money.  I have outlined my struggles with spending in this post.

Take my word for it, you cannot “out earn” your spending.  It cannot be done.

 

4. You need a buffer in your budget:

The reason for the buffer in your budget is for all the stuff you have to buy that comes out of  nowhere that will drive you crazy. Some examples are below.

 

Budget example: 

I had to pay Microsoft $69 to keep using Outlook.  They sent me an email that basically said if you dont upgrade, you’re email is not going to work anymore.  Really?  Did I have a choice?  Yeah its only $69, but that’s the little stuff of life that adds up and over time we wonder, Why am I not making more progress?  Why am I not getting our of debt?  Why do I never have any money left at the end of the month?  That’s why.

Want another example: car registration $213. Every year. For every car.

Every month there are expenses that come up that are unexpected, but still have to be accounted for.  Having a buffer allows you to stay on track for these unexpected payments.  (This is not to be confused with an emergency fund.  (More on that here.)

Creating a budget will help you become organized and better prepare for these little charges.  Once you get organized and know where your money is going, you can actually prepare for things like paying taxes and still have money left over to pay down debt or start investing.

Once you start creating a budget and watching your expenses you can feel a sense of control over your money and your life and that’s a great feeling.  I wrote about this in the post, It’s Not about the Money.  It’s about Taking Charge.

5. Cut out anything that doesn’t add value:

The next step is to cut out the purchases in your budget that aren’t adding value to your life or your family’s life.  For the budget items that you decide to keep, you should be negotiating discounts and saving money on many of these services.  I wrote a post about how I negotiated discounts on many services I subscribe to in the post, Negotiating Discounts on the Way to Debt Free.

I’m getting on top of my budget now.  So, I’m looking at every little charge and cutting back on anything that doesn’t add value.

The point is that all those charges that come up like

• medical deductibles,
• anti-virus programs,
• cell plan charges,
• parking fees,
• uber to the airport,
• checking fees,

They’re coming and we have to prepare for them in the budget in order to stay motivated.

 

6. Create Extra income

Increase your Income:  Depending on how much leverage you want to achieve or how much credit card debt and student loans you have, it may be time to increase your income.  When I got really motivated to pay down my debt, I wrote articles for a financial blog and created this blog.  You may want to find a side hustle or a source of side income.

I have written a number of posts about the best ways to increase income:

•   45 Ways to Boost your Income
• 11 Ways to Earn more Money in 2018
• What are some Survey Sites that Actually Pay?

 

7. Personal Finance is Personal:

So, the only logical thing to do is plan to save a little more ie have a buffer for things that come up unexpectedly in your financial life..  The reason is really more psychological than personal finance.

The buffer is to make sure you don’t get discouraged.  If you’re trying hard to save money in a month and you get three $70 charges hit you out of nowhere, its reasonable to be discouraged.  Don’t get discouraged.

So, my advice is cut  back a little extra and its game on.  Also, increasing your income is a great way to add a buffer in your budget and pay down debt faster.  More on income opportunities.

 

My attitude: I’m gonna win with my money.  Whatever it takes!

 

 

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