Sunday, October 16, 2011

Real help for a real budget

A reader of my blog took me up on this offer and graciously agreed to send me the information necessary to make a budget. Here's their situation each month:

Incoming:
550 Rental
1600 Salary
2600 Salary
4750 TOTAL

Outgoing:
1st Mortgage 1200
2nd Mortgage 700
Insurance 60
Trash 20
Internet 50
Phone 100
Tithe 475
Gas 400
Paypal 25
Visa 100
Groceries 800
Total 3930

There is a difference here of 820! That is great news!

So, what's the problem? They make a good income, but they also have some outstanding debt:

Balances due relatively soon:
Paypal 325
Balloon 750
Tractor 800
Balloon 2100
Balloon 4100
Visa 4800

This family needs an action plan. Here's what I recommend:

1) No more debt! This means that credit cards and debit cards should be hidden somewhere safe and your family should go on a cash only diet. Each time you get paid you need to decide (based on the budget) where the money will go. Once bills are paid, put cash for things like gas, groceries and tithing in weekly envelopes and spend nothing else. For example, your grocery envelope will contain $200/week in cash.

2) Add personal spending to the budget or anything else we've left out. Having a budget means having a plan. Every cent that comes in or goes out should be part of that greater plan. It is very hard to spend no money at all, so add $10 or so a week of personal spending for each adult or family member. Hand it out in cash on payday. When that money is gone, stop spending.

3) Take the 820 left and start paying off the outstanding debts you have. Its hard to get your money under control if you are enslaved to others in debt. Notice I listed the debt from smallest amount to largest. Unless you are in danger of losing your house, pay the debt off in that order. The reason is that when you pay something off it feels WONDERFUL and can keep you motivated.

4. Say no. Part of budgeting is having good boundaries. When your kids or spouse want something not in the budget, you have to learn to say no. Practice it, "No. We are not spending any extra money right now."

5. Find a greater meaning. The reason many people stink at budgeting is because they fail to see its importance. I can't tell you why you should improve your money management skills--only you know what you value. Some good reasons are: being a good example for your children, creating a secure feeling for yourself and your family, living with less stress, having money to put toward your goals/dreams, etc. I know some people look to the Bible or other writings to find wisdom about not taking out debt and/or being a good steward of their money. The important thing is that you find something that motivates you!

6. Find a way to stay motivated. I find writing my budget down and carrying it with me to be helpful. When I want to spend money on something, I pull out my budget and ask myself where will the money come from? For example, am I willing to spend less on groceries that month to buy it? Usually, the answer is, "No. Obviously my family needs to eat more than I need this impulse item." Also, when I had lots of debt (Yes, at one time I had $30,000 in credit cards and medical bills), I found it helpful to post my outstanding debt balances and mark a big ol' line through them as I paid them off. Posting your budget or debt can also help everyone in the household to get on board!

I also recommend the following books to get you inspired:

 

I hope this was helpful. Who else has paid off a large chunk of debt? Anyone else need help coming up with a plan?

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