How to Budget Effectively and Stay Out of Debt

Do you dread opening your mail each day because you know it will be another creditor asking for money? Do you live from pay check to pay check? You do not have to be wealthy to have enough residual income each month to be able to live comfortably. There are ways to budget and get out of debt that can allow you more freedom than you currently have with your own money.

Know what you earn versus what you spend

Begin by looking at all of your incoming income each month and then write it all down. Compare it with a list of your outgoings, including average shopping bills, water, electricity, dry cleaning bills, meals out each month and so on. You'll be surprised at just how much you spend, aside from essential bills and food shopping. After you have these figures compiled, look at the list again and decide what you do not really need. Do you need to eat out five times each week at $7 a time? That equates to $140 in total over the month or $1680 in a year! Instead of eating out so often when you are at work, try packing a brown bag lunch for half of the month and then gradually ease it down so that you do not eat out very much at all. If money is really tight, you will not be able to afford to keep eating out so often and you will notice the benefits very quickly because you will have surplus cash in your pocket each week. Watch the money grow by putting it into a jar each day and count it at the end of the week. How about the regular trip to Starbuck's? Perhaps you can make your own coffee at home and take it with you to work in a thermos flask. It may not be as glamorous or as exciting as Starbuck's, but it will help save you a bundle of money in the long run. Save Starbuck's for an occasional treat.

Paying your bills

When the bills start to roll in, you need to look at exactly where your money is going and make adjustments. Do you need all the frills that come with your telephone package? If you do not require a long distance provider or you do not make enough calls each month to make it worthwhile, then drop the service. It works out cheaper if you buy a pre-paid calling card worth $10 or $20 so that you have a back up in case you need to make a long distance call. It is useful to have a calling card, because you will always know how many minutes you have available at the start of each call. Shop around and find a card that offers you more minutes for your money. Avoid late charges by paying bills on time. If possible, try to pay for your bills online. You will have saved a stamp for each bill and the money will be instantly paid via bank transfer, giving you peace of mind. Try not to run up your credit card bill each month, so that you end up having to spread the payment over several months or even years. If possible, save for large purchases and pay in cash for these. Try to view your credit card as a back up policy for when you need to make an important purchase or in an emergency situation. Better still, look at it as a debit card. Whatever you spend, make sure it is within your budget to pay it all off at the end of the month out of your take home pay.

Saving

It is not easy for everyone to save. Some find it extremely difficult to put any money aside into a savings account. But doing so will pay off as you start to see the interest increase. Try and aim to save at least 10% of your earnings and put the money into a savings account. To begin with, this may not be possible. If so, start lower. Whatever spare cash you have in a jar can quickly add up. Rather than spend the money on something you do not need, take the money to the bank and deposit it into a high interest paying account. Some accounts yield more interest than others, so shop around. Remember that if you make it a habit of regularly dipping into your savings account, the interest payments will also go down. If your take home pay is $3000 a month and you deposit 10% into a savings account each month, that will be $300. Within one year you will have $3,600 saved up. If you carry on regularly depositing $300 into your account for the next five years, you will have $18,000 and that does not even include interest payments. Saving becomes more appealing when you see the benefits that can come from it, such as having a lump sum of money readily available that can be used to pay off credit card debt, a car, or some other purchase.

Keeping within your budget

Try to stay within your budget. It is when you overstep your means of living that you will find yourself trapped in a cycle of debt. It is hard to get out of debt once you are in it, so try to avoid excessive debt and do what you can to keep afloat. As I mentioned at the outset of this article, you do not need to be wealthy to live comfortably. So when it comes to your next car purchse, think long and hard about it. Can you put down a deposit on it rather than opting to finance the entire purchase? That will help reduce your repayments. If you can pay off the vehicle sooner, all the better! Your credit rating will improve and you will be free from the monthly burden of car payments. The extra cash can then be used to pay off another debt or put aside with your regular savings amount, ready to deposit in your account. Do not give in to the temptation to keep up with the Joneses. Each individual or family unit has a different income and circumstances to you, so do not compare yourself to them and envy what others have. By going after what others have, you may well be harming yourself financially.

With a little careful financial planning and strategic cut backs in your life, you can be in charge of your finances rather than continue to be a slave to them. Learn to live on what you have, not on loans and credit cards. Remember that it is much easier to spend money than it is to recover it. Once it is spent, it is gone permanently. Of course, you may not be completely debt free for many years, especially if you have a mortgage or any other substantial outstanding debt that you need to pay for. But you can still learn to live comfortably with what you have saved from non-essential purchases. Your life can then be your own, rather than your creditors'.