How to create a budget and stick to it

By ,
Ask a Lender
September 8, 2017


Key Points

Budget basics

  • A household budget is an important tool in managing and winding down debt.
  • Temporarily sacrifice long-term investments to cut short-term debts.
  • The key to budgeting is recording and tracking monthly expenses and income.
  • You must remain committed to revising the initial budget as circumstances change.
  • You must commit to sticking to your budget.

It is nearly impossible to get out of debt without a setting a budget, but establishing a budget that works is easier than it sounds. Sticking to that budget, however, is the really hard part.

Budgets come in many flavors. You can set budgets to meet long-term and short-term financial goals. Here we’re talking about establishing a household budget primarily to get out from under the burden of high-interest credit card debt.

Although it is a good idea to have a long-term budget plan for the future, most credit counselors recommend that you extinguish your high-interest debt first, sacrificing payments to longer-term retirement investments and savings accounts for a short period while the credit cards are being paid down. The budget will enable you to meet your living expenses, while potentially freeing up money to wind down the debt as quickly as possible.

Know what you owe

To set a budget, you need to take a full accounting of what you owe. If you’re like many people, you only have a vague idea of what you are spending each month, and how that compares with your monthly income. Many people pay their bills as they hit the mailbox, never bothering to tally up the entire credit card debt load and the aggregate minimum monthly payments.

One clean way to get a handle on all this is to record all of your expenses and recent daily expenditures on a spread sheet. These are your fixed expenses, including the minimum credit card payments, rent or mortgage payments, student loans, car payment and utilities.

Once you determine the expenses that don’t change much month-to-month, you can figure out how much you have left over for food, entertainment and other items that tend to vary in cost.

Now that you have a good idea of how much you owe and how much money you have to spend, you can establish a budget. At a minimum, you should set a budget that doesn’t add to your debt burden. It also will be possible to see the areas where you may be able to cut some fat and free money to whittle down credit card debts faster.

Stay committed

Your work won’t end with the initial budget, however. It is important to keep tracking your expenses and revising the budget as you live with it.

Financial circumstances can change. Your work hours may get cut, get a promotion or add a second job. Your car could break down, and you could be hit with other large, one-time expenses that throw off your plans. These need to be factored into regular revisions of your budget.

Probably the most important factor in budgeting is attitude. You have to stay committed to tracking your expenses and keeping to a budget.

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