In my first “How Do You Get Out of Debt?” post last week, I told you that there are 5 steps to getting out of debt and winning with money. Today we'll talk about the first step in the process- how to make a budget.
The First Step to Get out of Debt
Now that you're mad and naked, you're ready for the real deal- taking the first step toward getting out of debt.
So What's the First Step to Getting Out of Debt?
It's making a written budget.
What, you thought it would be something fun like throwing a “get out of debt” party for all your friends?
Sorry to disappoint.
You can do that later, when you really are out of debt. It'll be much sweeter that way.
Seriously though, I know it probably doesn't sound like learning to make a budget is much fun, but trust me it's well worth the effort.
Why Do You Need a Written Budget?
Why do you need a written budget? Because you need to know where all your money is going.
Most people think they know, but when you press them on the issue, they really don't have a clue about how they truly spend their money every month.
Yes, I'm talking about you.
But when you're diligent to create a written spending plan, you suddenly have much better control over how your money is being used. It allows you to use money much more efficiently than you otherwise would.
Creating a Budget Answers 3 Important Questions
Doing a written budget answers 3 important questions for you:
- What am I spending money on? (Most people only have a vague idea)
- Where am I wasting money?
- Am I making enough money to get by? (You may need to increase your income)
When you're able to answer these 3 questions because you have a written plan in place, you're no longer flying by the seat of your pants financially, and the result is that you start to gain control of your situation.
A written budget paints a picture that helps you see what's happening with your money. You can control the flow of each dollar, telling it where you want it to go. Budgeting also ensures that you don't spend more than you make. Because when you have a plan, you can make sure that what goes out is equal to what's coming in.
So How Do You Get Started Doing a Budget?
The first thing I recommend is that you write down every single purchase you make for the next 30 days. If your married, have your spouse do it too (Hopefully he/she is on board with getting out of debt).
You can use a little pocket notebook, or the note taking app in your smartphone.
At the end of the month you'll have a snapshot of how you spend your money. You will also have developed a little discipline because you were diligent about paying attention and writing everything down.
Discipline is the Key to Getting Out of Debt
When you look at how you spent your money for the month, are you surprised?
You'll probably see how easy it is to let a few hundred dollars slip away from you in inconsequential purchases. It's those things that you really don't think about, but add up over time. It will help you identify those areas where there is waste, where you may need to cut back.
Filling Out Your First Budget
So now that you've been disciplined enough to write down your purchases for 30 days, you're ready to fill out your first monthly budget (Download free budgeting forms here).
Just fill it out using the instructions included with the forms. I won't go into all the details here, but you can read the instructions along with this post about budgeting to help you along.
If you're really feeling energetic you can purchase my book “Balance: The Quick and Easy Guide to Financial Stability Using a Budget” from Amazon.com. It's a short, easy read that will tell you every single detail you need to know about how to start a budget successfully and stick with it.
Making a Budget Takes Practice, But You'll Get it
One thing you should know, getting in the habit of making a budget every month feels really intimidating at first. That's why most people never start.
But if you start it and stick with it, doing a budget consistently every single month, things will start to change for you financially.
It's a little strange to wrap your head around it in the beginning. I struggled a little at first, too. But it's just like learning to do anything new- the more times you do it, the easier it gets. After a few months you'll be an old pro.
It's only 3rd grade math, YOU CAN DO THIS!
A Budget Gives You Total Control Over Your Money
When you do a written budget, you have a concrete plan that you can stick to. You're able to direct every single dollar to where it needs to go. When you have a direction for your dollars and exert total control over them, you have just taken your first step toward getting out of debt and achieving permanent, life changing financial freedom!
Stay tuned for the next post when we get a little deeper into the process with the second step that will launch you even further toward complete debt freedom.
Have you ever struggled with budgeting?
What was the biggest issue you had with it?
Tell me in the comments.