Step 5 To A Debt-Free Life: “Create A Budget”
You’re going to organize your finances. Hold onto every receipt, bill, paystub and invoice you produce throughout the month. Sometime during the last week of the month, sit down with all of your paperwork and start crunching the numbers.
When you’re through, you should have all of these questions answered:
- How much is my net monthly income?
- How much are my monthly fixed expenses?
- How much are my monthly non-fixed expenses?
Now that you have the numbers in front of you, work on creating a budget. Designate the necessary funds for your fixed expenses. Then, with the remaining money, determine how much you will spend in each non-fixed expense category; like groceries, clothing, entertainment, etc.
Put your minimum debt payments in the fixed-expenses category, with another category for extra debt payments in your column of non-fixed expenses. Determining a budget will also help you decide which debts you can pay off. If you stick to a budget and find out that after setting aside some money for an emergency fund you still have some extra, the best thing for you to do is to put that extra money towards paying off your debts faster. After all, your debts likely continue to build up interest making your final amount owed greater than you borrowed. Budgeting will help you determine where you can make cuts to your lifestyle and where you may need to focus more of your funds
