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This guest post is brought to you by The Digerati Life, a site that covers a wide range of topics on personal finance, from discount brokerages such as this review of TradeKing to credit cards and debt reduction. Topic for the day is budgeting and debt management. The text in italics has been added by yours truly (Mr. Moneybags).
Meet your new best friend
It happens.
Irrespective of how you want to solve your debt problems, you should use budgeting as a debt management tool. When you’ve become overwhelmed with debt, you must precisely find out how much you earn every month and how much money you spend every month in which areas - unless you enjoy not knowing how much money you make, where you spend your hard earned money and finally gawking at your massive credit card bill at the end of the month of course!
Most people turn away from designing a budget. Nevertheless, you would need to put your monthly income and expenditures in order if you want to go for any of the following options:
- Reducing debt
- Enrolling with a credit counseling service (those godly people that help you reduce your debts)
- Negotiation with creditors for substitute repayment plans (the godly people mentioned above can help you with this as well)
- Debt consolidation through balance transfer card offers
- Filing for bankruptcy (of course that would mean you weren’t following the sage advice on this godly website)
The Debt Obliteration Action Plan
Even though you don’t want to go for any of the above mentioned options, it’s essential to get a transparent picture of how your money is spent every month or you will end up installing fluorescent light bulbs for little old ladies to be able to support your current lifestyle. So, to find out your actual financial condition and become debt free forever kick debt square in the crotch, you should must take the following steps:
First step: Determine the areas where your money is spent and how much gets wasted every month.
This also happens.
Second step: Determine how and where you can reduce your expenditures for freeing up additional funds to pay down your debts; try finding cheaper alternatives to things you are currently using.
Third step: Make a decision about what plan of action you want to take (credit counseling, debt settlement, bankruptcy or making more income via interesting venues such as kidney harvesting) based on what you found out regarding your finances in the first and second step.
You should always look for ways to cut down on your monthly expenditures (unless you have an unlimited amount of money, such as myself). Talk to a debt management professional who would work with you to design a practical budget. Follow it.
By monitoring every penny spent for a number of months, you will find that you’re unloading your pile of debt without anybody’s help and without having to go for bankruptcy, debt settlement or credit counseling. Some people find out that they waste up to $800 each month ($9600 a year) that they could have used to pay down their debts - compounded at an annual rate of return of 30%, that’s over $600 thousand in 10 years and just under $10 million in twenty years! That’s the equivalent of 30 million sticks of gum, 9.5 million chocolate bars, 7 Bugatti Veyrons or one Victorian mansion wasted on virtually nothing!
The Wonders of a Budget
If you don’t have a budget in place, it can and probably will shatter your dream of becoming debt free. If you don’t have any debt, the absence of a budget can make you fall into debt. If designed properly, a budget can make your life stress free. A budget would help you identify the area where you should cut down on your expenses. With a budget, you won’t have to worry if you have sufficient funds to pay off your bills. Living within a budget makes your life simpler and ensures that you don’t fall into debt once more. It helps you regulate your spending so that you don’t have to depend on loans to make ends meet.
Knowing that, why don’t YOU have a budget? Go make one now!
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Creating a budget was the best thing I could have done for myself. I take total account of where my money is going and it make me think twice about any impulse purchases as well. I’m glad I started while I’m young!
It’s sad how few people follow a budget, it can be extremely helpful to insure you don’t end up sweeping floors for extra cash. Then again when you have an infinite amount of money (see: myself) there’s not really much point of a budget…
I think many shy away from a budget because they fill that it restricts them. However, we should all look at budgets as choices. The money is yours and you get ot choose where to spend it. It should not a be a process that feels like punishment. Once you get the hang of sticking to a budget, you can really begin to see a successful financial future.
For many, budgeting is viewed as more hard work. It requires a lot of discipline and self restraint. Budgeting to gain control of your debt can be the smartest decision you’ll ever make. Many people just view it as more work and no fun.