We’re half way through January; this is a good time to check in and see how you’re progressing towards any new year goals. Remember, you don’t need the new year to start a new thing; you can start at any time. If you have a goal to start fresh with your money and to be intentional with your money this year, now is the time to get going with a budget. If you need a little help figuring out where to start, in this post I’m going to tell you how to make a budget and share nine tips to get out of debt.
HOW TO MAKE A BUDGET
1 | Figure Out Your Income
To start creating your budget, you’ll need to know how much money you have to work with each month. Write down your monthly net income. If you get paid every other week or your income is irregular, look through your bank statements for your last few months of pay and take the average. You want to get your income as accurate as possible since that will determine everything you can do with your budget.
2 | Gather All of Your Bills
Collect all of your monthly bills. Look through your old bank statements and write out all the monthly expenses you have — rent/mortgage, electricity, water, credit card bills, car loan payment — everything that is mandatory each month.
3 | Evaluate Your Monthly Spending Habits
Look through your past few months of spending and start putting those purchases into categories. Do you spend money on eating out a lot? Or going to Starbucks every morning? Are you spending your money on clothes? Make note of all the categories that you’re spending your money and the average spent for each category.
4 | Create a Spreadsheet
I love creating my budget in a spreadsheet so that it will add and subtract everything automatically when I plug it in. Create a basic spreadsheet with your income, your bills, debt (minimum payments only), and all the categories of your spending. Next, key in all the numbers you just gathered, and subtract your expenses/bills from your income. Is there any money left over? Are you in the negative?
This spreadsheet is the beginning of your budget. If you were in the negative on your spreadsheet, see if there are areas that you can cut costs. If you spent a lot on eating out, try to cut that out completely and cook at home instead. If you are spending money on clothes, cut that from your budget too — you probably have plenty of clothes to wear. You want this budget to be realistic, but you also want to be in control of your money. Remove those non-essential items and evaluate where your money is going.
Once you have removed any non-essential items, and have really combed through any areas that you can cut spending, your basic budget is ready. Being able to visualize your money and where you’re spending it will help you to make informed decisions.
5| Make a Plan
Now that you’ve seen where your money is going, it’s time to make a plan. If you have any debt, make a plan to get rid of that debt.
We followed the Dave Ramsey Baby Steps to get out of debt, and it was really motivating to listen to his podcast and hear others do their “Debt Free Scream”. The Baby Steps are easy and a good starting point if you are wanting to get out of debt.
Baby Step 1: Put $1,000 into savings for an emergency fund. This emergency fund is only for a true emergency; make sure it’s separate from your regular checking account money. Once your emergency fund is complete and tucked away (but still easy to access in case of an actual emergency), it’s time to move on to Baby Step 2.
Baby Step 2: Any extra money you have at the end of the month should be used to clear any debt. List out all of your debt in order from smallest to largest (don’t worry about interest rates or anything). In this step, you put that extra money towards your smallest debt; just focus on eliminating one at a time, smallest to largest. This is the “Snowball” method and it’s great because you really build momentum and feel accomplished with each debt you pay off. You stay in this step until you’re debt free.
Baby Step 3: After all of your debt is paid off, imagine the relief you’ll feel. Not having any car payments, or credit card debt will free up all that extra money for other (better) things. In this Baby Step, you build on that $1,000 emergency fund until you have 3-6 months of expenses saved up. It feels great having a full emergency fund and being able to relax, knowing that you are ahead of your money.
With a budget, you tell your money where to go in the beginning of the month. You are intentional with your money, and you can feel good about making purchases because it’s something you already planned for. Once you’ve finalized your budget, you don’t have to think about having enough money for something, or feeling guilty about your purchase because those expenses were planned for in your budget! If it’s in the budget, you can feel confident in your decision.
Once you have made your plan on where you want your money to go for the month, you can be intentional with your spending. Print out your budget and use it!
6 | Follow the Plan
In order for your budget to work, you need to follow it. I print out my budget spreadsheet each month and tape it into my Erin Condren Life Planner. I’ve talked about how I budget with my Erin Condren planner before, but basically I tape my budget onto the quote page for each month and I write in our expenses throughout the month. (Use my link to create an account and get $10 off your first purchase with Erin Condren).
I use my planner for everything and having my budget inside makes it perfect for me to track expenses and bills, and also progress towards vacation savings or other goals. For your budget to work, you need to keep it front of mind. Make sure you are tracking every purchase. I highly recommend an Erin Condren Life Planner, but any notebook or paper will work. A lot of people use the Deluxe Monthly Planner instead of the LifePlanner for budgeting; just do whatever works for you. And if you aren’t good with tracking/remembering to track each purchase, then the cash system might be better for you.
With the cash system, you pull out cash for each category in your budget, and when that money is gone, that’s it for the month (or week). I’ve seen people use clips or envelopes to hold the money for each category and that way it’s kept separate. If the cash option works for you, then that’s a great way to keep on top of your budget!
Just make sure you stay focused on why you want to get out of debt. When you know your “why”, it will help you to stay on track if you start to lose motivation.
TIPS TO GET OUT OF DEBT
Getting out of debt may be a long process depending on how much you have, but these tips can help you to shave off some time and get out of debt faster.
Attack it From Both Sides
If you really want to get out of debt fast, attack it from both sides. Cut up those credit cards and stop acquiring any new debt. If you use a credit card “only for the points”, that’s not a good reason. Cut those cards up…even department store cards. You don’t want any credit cards of any kind. Next, try to earn some extra income — even if it’s just a part-time job for a short time. Any additional income will help you pay off that debt faster.
Make Some Extra Money
If you aren’t able to take a second/part-time job, try to make some extra money at home. You can go through your closets and sell some clothes or other items on eBay. It doesn’t take much time to list your items and you can earn a little bit of money. If you have a hobby/create something, try to sell your craft. Do you have ideas you want to share with others? You can start a blog and earn money through ads or sponsored posts. (Here’s my guide for how to start a blog). Whatever you do that can earn a little extra money will help you to get out of debt that much faster.
Use the Snowball Method
As I mentioned above, the Snowball method of paying off the smallest to the largest debt is what worked for me. By paying the minimum payments on all your debt and then using any extra money towards the smallest (lowest total amount of debt), you will start crushing one debt at a time and that momentum will be so motivating. Imagine knocking out your smallest debt; that’s one less thing to think about and you can focus on the next smallest. As each one is paid off, you check it off your list. It’s encouraging to see your progress in the completed accounts you’ve paid off rather than just paying them all off equally and delaying the process of closing one out.
Prepare Meals at Home
Although eating out can be fun or convenient, it can also be pretty expensive. Even just eating fast food or something inexpensive can really add up. It’s way less expensive to prepare your food at home. I use my Erin Condren Life Planner to help me track my grocery list for meals that I want to make that week. Cooking can be really fun too, and I’ve found a lot of great recipes on Pinterest that have turned out really nice. Being on a budget doesn’t mean you have to be boring and not enjoy a meal, but if you want to yet out of debt faster you just need to be smart about making your meals at home.
Plan Errands
Planning out your errands to one trip can help you be more efficient. You will save on gas, and you will learn to be more intentional with your purchases. We pretty much do all of our errands on Saturday and it’s great because we don’t have to keep running back to the store during the week. Plan out the groceries you need, and the other errands you need to run so you never get caught up with impulse purchases or waste gas on multiple trips.
Cut Your Cable
We haven’t had cable in years and we definitely don’t miss it. It’s so crazy to me how expensive it is, and yet you still have to watch all these commercials. We use Netflix which recently raised its price to $11/mo. which is still very inexpensive compared to cable. If you aren’t into tv/movies like Netflix, then this would be a great area to cut completely from your budget. We like Netflix because there are some great shows and movies on there and that is our entertainment for the month.
Cancel Subscription Services
Like I mentioned, if Netflix isn’t your thing, you could cancel that subscription entirely. Or if you have Netflix and Hulu, you can probably cancel one of those. Be critical of what subscriptions you have and how much you are really using them. I have Amazon Prime and it’s great from me because I use it a lot, but if you only make a few purchases from them, then the yearly subscription might not be worth it for you. I like Prime for the free 2-day shipping, prime video, and now Amazon Fresh where they deliver groceries to your door, so it’s worth it to me. You can get a 30-day free trial if you want to test it out.
Make DIY Gifts / Explore Locally
It can be harder during the holidays or during birthdays to be on a budget. But your friends and family will understand if you aren’t buying gifts this month/year. This is the time when remembering your “why” is really important. If you do still really want to do gifts, consider a DIY gift, or consider sharing an experience with that person — maybe explore the local museum or visit a park. Spending time with the ones you love is a great gift!
Stick to Your Written Budget
The key to reaching your goals is to stick with it. Write it down, and follow it. Your budget is your guide for telling your money what you want it to do, not the other way around. You are in control. Make your budget a fun thing, not something restrictive or bad. Celebrating your successes and sticking with your budget will help you to feel inspired and motivated.
I hope you are inspired to tackle your budget and get out of debt! It can be a long road, but it is so worth it; keep it up and be intentional with your money. If you found this post helpful, share it on Pinterest; Happy budgeting!
