Wednesday, April 14, 2010

Getting out of Debt: Step Four

It's time for the "B" word - creating the Budget!

Take a piece of paper. Create an Excel spreadsheet. Get some budgeting software. Which ever way is easiest for YOU. It is YOUR budget, after all. I personally built an Excel spreadsheet for myself - designed to my own desires. I love my budget, too, even if I don't always like what the numbers show me. Simply because with MY budget, designed for me, I can see everything I want to see simply by opening the thing up.

You obvisouly need to have an income category (ies). You may do either Gross income or Net income. I personally only use my net income. It is easier for me to deal with. My income categories are as follows:

Previous Month's ending Bank Balance (Because I never know how much I am going to make, I do not zero balance out each month. For me, this allows me to see where my financial picture looks like for the future)

Tips (Tips change from month to month)


GI Bill (its income!)

Child Support (just in case I get it!)

Rent (from my rent house)

Misc Income (sometimes I get money I wasn't expecting as a gift!)

Add all of those amounts together and I have how much money I have to work with during the course of a month. Fun Fun!

Next, you need categories for your expenses. Everything you pay each month needs to be addressed. Start with things like:

Mortgage (Rent)
Natural Gas
Vehicle Payments
Child Care
Credit Card 1
Credit Card 2
Credit Card 3 (and so on)
Loan 1
Loan 2 (and so on)

Add these amounts up, and you know how much money you HAVE to spend each month. Subtract this amount from the income amount, and you have what's left over.

If you see a big red number after doing this, you have a problem. For starters, you haven't yet bought food, household products or put gasoline in your car. Those are things you kinda need. You need to immediately look at ways of slashing some of those above costs and increasing your income. You may need to get a second job, sell A LOT of your stuff, or cut the cable. But you need the number after subtracting expenses from income to be in the black. If the net amount is zero, you still need to increase income and find a way to slash expenses, because you still have some expenses to add into the budget!

Now it is time to add in your varible monthly expenses. Like:

Household Products
Christmas Savings
Medical Savings
Car Maint/Repair

You have already tracked everything you buy, so you have a good idea of how much you actually spend in all of these categories. Just put those numbers into this category. Add up the first set of expenses with this set of expenses and subtract from income. This number tells you how much money you truly have left at the end of the month.

Again, if you see big red numbers, you are going to have to adjust the amounts you are spending in the varible categories. If you can't go out to eat this month, so be it. If you have to slash your grocery bill by a few dollars, do it. A number of Zero means that you are flush even between income and expenses, but that isn't going to help you get out of debt. You may still have to sell some stuff, get a second job, and slash expenses.

If you have a number above zero, congratulations! You have something to work with for the next step of getting out of debt!

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