Get Out of Debt! Simple Steps to Creating a Financial Budget

The average North American household holds a current credit card debt of over $9300. Credit card companies take advantage of that by making running up your balance extremely convenient. Today, carrying debt is almost unavoidable, and in most cases, desirable and necessary for some households. Too often a sound financial budget is forgotten. Between mortgages, credit cards, car payments, and retirement funds, many Americans are finding themselves over their heads and unable to dig out of its hold. Their growing debt consumes the largest part of their incoming resources. Creating a sound financial budget can be difficult, and daunting, but every person that carries debt, is capable of doing it.

The first thing you need to do is find out how much debt you have, and how much is too much for you. This varies on an individual and income basis. If more than 20% of your take-home pay is going towards debt that is non-housing based, and your rent or mortgage exceeds 30% of your take home pay, then you are more than likely overextended. It is time for you to kick your financial budgeting into gear.

Signs that you do not have a financial budget include not knowing how much debt you have, consistently paying minimum balances on your credit cards, and borrowing from one card or lender to pay another. Don't panic. There are a number of steps you can follow to establish a good financial budget, and eliminate that debt to get yourself back on track. Working your way out of debt and establishing a sound financial budget you can stick with is going to require you to adjust your spending habits.

The first key to establishing a financial budget is to find out where you money is going. This will allow you to see where the debt load is coming from, and maybe help you free up some cash towards the debt. Track your expenses for 30 days by physically writing out what you are spending your money on. Keep your ATM slips and write down on it each expense you have until your cash is gone. Hang onto your credit card slips as well, and add those to the total.

At the end of the 30 days, add up your outgoing funds and break them into categories. You should have an essential group for your fixed expenses like housing, groceries, and your electrical/water/cable/phone bills or any other utilities. Then add up the costs for your next category, the nonessentials. This will include entertainment, meals, clothing, and things of that nature. Analyze the expenses to see where you can reduce your spending. Can you cut back on some of your phone features? Can you bring a lunch to work everyday? How about making your coffee at home and bringing it with you in a thermal mug? Even your electricity or heating costs can be cut by bringing the thermostat down a bit in the winter, and up a bit in the summer. The goal here is to decrease your current spending so you are not adding to your debt. You also will be freeing up as much cash as possible to cut down on current debt. This is the foundation to a good financial budget.

Once you have your initial financial budget settled, you can start to attack your existing debt with the following steps on your credit lines:

1. Pay off the high rate cards first. The higher your rate, the more you are paying out for nothing. Begin with your highest rated card and get rid of the balance as aggressively as possible.
2. Transfer the high rate debt to a lower rated card. This will save on interest expenses over the life of the loan.
3. If you must borrow again, do so only for the long term. Only finance things that will gain in value like a house, education, or home appliances that will still be around when the debt is paid off.

By following these simple steps, you too can create a sound financial budget and decrease your debt. The key to a good financial budget is analyzing spending, control expenses, establish a plan, and reduce your debt load. This financial budget will leave you with more money to save today and a brighter financial outlook in the future.