Budgeting to reduce your debt (part 5)

Figuring out your actual budget needs

When it comes to striving for a debt free life, there are many ways in which you can budget, as you have already read in the other parts of this debt free budgeting article. This part of the article will be covering the ways you can go about figuring your budget out.

You may be interested in the multiple account system or the envelope system (as we have completely gone over in the past sections of this great article), but you have come to understand that your really have no idea how much money actually belongs in each envelope or account. Since you may have already incurred debt by not necessarily understanding the best ways to handle your money, it is not hard to believe that you might want help figuring this out in detail.

Figuring out just how much money to put where and when will take a bit of planning and figuring. If you have retained your past statements and or bills from debts and creditors in the past, this will be a bit easier on you when it comes to making a new budget to become debt free or at least less in debt. If you have your past bank statements for the past 23-6 months, this will also be extremely helpful for tracking where your money has been going. You can obtain these statements from your bank (usually for a small fee if not free) if you do not have them. If you have online banking, you can get the last couple of months there automatically. Otherwise you will have to rely on your current spending as a reference.

Worth noting: There are no budgets out there than can easily handle unanticipated needed expenditures – which just happen without our control. So, be certain that you create a reserve fund that you add to on a regular basis. This fund will not happen over night, you just have to be certain that you have one and that you are adding funds to it regularly. If you have an emergency account that contains $500-$1000 in it, it will be much harder for an emergency to throw you off your financial track and mess up your budget. Again, this fund will not happen over night and we understand that someone who is currently experiencing financial difficulties will probably not have a lot of cash lying around, but you have to understand that building this fund is vital. Add it to your budget as a bill if you have to.

Alright, now that we have covered the preface for figuring out budgets, the below categories will explain how to do it in more detail.

Getting your data together

First and foremost, you have to gather as much information about for finances as you possibly can. The more information you have upfront regarding your expenses, the better off and the more detailed your budget will be from the very beginning.

These days, there is so much technology that makes keeping track of banking and expenses so easy. Just about any and all of your major debtors has a website where you can not only access your past payment information, but you make payments there and more. Try getting as much out of each site as you can for free. Most of your department store credit cards have free payment options on their sites, so take advantage of this if you can. It will save time and postage. You will be in more control over when the payment arrives too.

If you pay by check through the mail, just be sure to record it in your checkbook so you can track payments easily. In fact, get in the habit of recording everything you can as detailed as you can in your check book’s register so you will be able to track expenditure trends and much more in the coming months. If you already do this, you will be able to catch on to this very fast. Even though it is one thing to record in your checkbook it is another thing to be able to balance it and keep it in order at all times. You will find that the more organized you are when budgeting and such that the easier and less time consuming it will be for you to work on becoming debt free.

If you continue to use credit cards during this process, which is not recommended if you are trying to become debt free, you will need to record each and every credit card purchase by category. You will want to look at your credit cards in detail each month to determine that exact interest you are paying for each month of spending.

Truthfully, you will want to record all of your expenses whether they are from credit, cash, checks, check cards and or ATMs. No matter how you buy, you need to record it so you can refer to it against your budget for each and every month. When you do record these entries, be certain that you are detailing as much as you can. If you have a small cash purchase of $5 or under, it is okay to enter it as miscellaneous, but the more details you divulge in this register the better off you will be. After all, there are many $5 purchases out there that you will be making time after time that will add up quickly. If these purchases are being made on unnecessary items and you only track them as miscellaneous – you will not be able to recognize a bad spending pattern.

Part 6…