Why Having a Budget Is the First Step to Getting Out of Debt

The following is a guest post. See the end of the article for author information.

Many people constantly complain about being in debt, but when you ask, “Do you have a budget; Do you know how much you owe,” or when you suggest they cut back on expenses they look at you as if you are speaking a foreign language, or they just plain out refuse. I am always amazed at this, how can you ever get out of debt if you don’t change your mindset or if you aren’t willing to work hard and make sacrifices? There is no quick fix or cure-all to get out of debt. It takes a long time to get in debt, and you will not get out of debt overnight.

Many people do not know how to create a budget for themselves and many don’t even know where to start. Luckily, I was taught at an early age how to create a budget for myself. I knew how much money I spent and how much I had left. This skill helped me when I became an adult and got into debt. How did that happen, you say? Well, although I knew how to budget my money I didn’t have a clue about how credit cards worked. I thought it was free money, but that is another article.

Anyway, the first step to getting out of debt is creating a budget for yourself. The basic premise for creating a budget is to know what you have coming in and what you have going out, in other words, how much money you bring home and how many expenses you have (creditors, loans, utilities, cell phone, day care, dry cleaners, etc.). Make the budget flexible so you have room for unexpected expenses such as house repairs or car repairs. If you don't have an emergency fund or savings to cover these expenses, you can readily see in your budget areas where you can reduce your expenditures to get money to pay for those unexpected items.

Having a budget makes you responsible and accountable for your finances. Most people don't think about how much money they spend per week or per month, but when you write all of your expenses down on paper it provides awareness of your spending habits.

Once you create your budget you can easily see if you have too many expenses or if your money is not being managed properly. The easiest task to accomplish is determining if you have too many expenses, you simply cut down on your expenses and you will have additional money. To pay down some of your debts, some expenses you can reduce include:

* bringing your lunch to work
* canceling your pager, cable or cell phone service or get the cheapest plan available
* carpooling, or catching the subway or bus to work
* using coupons when buying groceries or shopping at wholesale stores like Costco or Sam’s Club
* selling unused items at a yard sale or donating to charity.

If you are mismanaging your money, or spending your money on wants instead of needs, that is a little harder to overcome because this takes willpower and discipline. It takes 23 days to develop a habit so you have to practice good spending habits every day. Each week it will get easier and easier. It also helps to develop financial goals for yourself, such as you want to get out of debt within a specific time period, you want to buy a house, take a vacation - whatever your goals are write them down and give yourself a target date.

Don’t get alarmed if you miss your target date for a financial goal because your main focus is changing your spending habits. Remind yourself that you are working toward achieving your goals. It may take some time, but I know you can do it. Being debt-free is worth the hard work and discipline required. Financial freedom is so sweet. Just think how nice it would be to wake up each morning not worrying about having to pay a creditor, not worrying about creditors calling your house asking for a payment, being able to see yourself in a house, or buying investment property or taking a vacation every year.

So many things are possible when you are debt-free and live on a budget. I make a decent salary and only have one bill, my mortgage, and I still put myself on a budget every payday. Sometimes people ask, “Why do you worry about money?” and I say I always liked to be prepared, because you never know what may happen.

Harrine Freeman is the CEO of H.E. Freeman Enterprises, a credit repair and personal finance services company. She is a member of the American Association of Daily Money Managers, a credit repair expert and the author of, "How to Get Out of Debt: Get an ‘A’ Credit Rating for Free Using the System I’ve Used Successfully with Thousands of Clients.” For more information visit http://www.hefreemanenterprises.com.

Comments

[Minimum Wage]

I don't need no stinking budget. After I pay my rent and $300 of debt service, I have about $300 left for everything else. I have zero available credit, so I cannot overspend. I keep lots of rice, mac and cheese, pb&j, and pasta on hand, so I'm not spending wildly on food, plus if I get in a pinch, I have food reserves I can use to conserve cash. It's hard to see much marginal benefit from having a budget.

[EMF]

Seems there is a benefit to working for minimum wage after all --- no need to budget.

[Minimum Wage]

People with credit and a propensity to spend would still need a budget.

[Jill at housewifery.wordpress.com]

Possibly having a budget isn't for all personal finance situations; I can sure say it's helped my family and I get back on track to priorities e.g. saving first with allocating marginal income toward things of less importance. Using Quicken helped us realize - ouch! - just how much we'd spent on non-necessities last year. And a budget added some needed structure.

[Minimum Wage]

It's also worth noting that if I were to tithe, after tithe, rent, and debt service, I would have less than $200 per month left for everything else. Is that realistic?

- Minimum Wage How much you paying for your internet access?

Anyone read that article on that family of 7 (or something) that lives debt free off of 35k?

I can see where budgeting helps but I also don't think that you need to do it on a monthly basis. Maybe semi-annually? I Rarely buy anything I don't need, except I do waste money going to Starbucks twice a week. With that being said, a budget doesn't really help me that much.

[Eric]

Putting together a budget was a real eye-opener for us. We had no idea how outside of our means we were actually living until we did so. The budget gave us control and helped us prioritize what's important to us.

[Regina]

I am trying again. I am a first time homebuyer and really need all the tips I can get about budgeting. I need to know things like: how to do it, how to change from just paying the bills to how to save money using the budget. Any and all help will be appreciated. Also, if I win, then where do I look to find out that I won? I really need the help. Thanks.