Please enjoy today’s guest post from Peter Smith.
There is a saying that people can be divided into 3 categories: those that make things happen, those who watch things happen and those who wonder what the hell happened. This is true in life as it is true in personal finance. Into which category do you belong? And is that the category to into which you’d like to belong? If you want to be in the category of people making things happen, by following the 5 tips below, you can create a debt killing budget and really make things happen.
Have a Vision
It is difficult to create a meaningful budget, if you don’t have a plan or vision for where you want to be in 2 years, 5 years, 20 years, in your retirement. Do you want to study, get married, have a family, and own your own home, travel? What are your aspirations? Once you have a vision in mind, you can start to plan towards achieving that vision and creating a meaningful budget.
This will require careful monitoring of your spending. You know what you earn. The trick is not to spend more than that per pay period. Start by collecting receipts for your spending at the supermarket, for gas, rent, telephone, clothing, going out, car expenses etc. Do this on a weekly, monthly and quarterly basis, since not all expenses are due every week. The easiest way to do this would be to create a spreadsheet of all your annual expenses. The most important thing is to be as accurate and honest with yourself as possible. One expense that is often overlooked in a budget is leisure spending, i.e. going to the pub or a show or weekend away or holiday. Put it all in!
Live and Earn
If you are in debt and your budget shows that your debt is increasing, then you are in trouble. Have a look at your budget and see what expenses you can trim. Only buy what you really need. Not doing this is like throwing money away. Avoid impulse spending. If it is not on your budget and there are no extra funds available for this item, put off buying it until you do have the funds. The important thing is to pay off all your bills every month and reduce your debt.
Of course you have a credit card. Credit card providers are knocking on your door offering you a new card and regularly invite you to increase your credit limit. You might even have more than one card. Be honest, do you need more than one card? It is so easy to go shopping with a credit card. The most common form of debt, apart from a household mortgage, is credit card debt. This is a big trap, since you will be charged interest on the balance outstanding, which will be added to the debt owing in the following month. If you can, get a balance transfer to reduce or eliminate your interest payments for up to a year. Compare credit cards using comparison tools to find the lowest interest rates on cards.
If your debt is getting on top of you, don’t be ashamed to get advice on how best to deal with it. Debt Discipline offers advice on methods of debt reduction by budgeting, having a plan and spending less than you make. Avoid offers from pay-day lenders who offer quick loans to get you “what you want”. They usually come at extremely high interest rates, even higher than credit cards. And above all, never pay off one credit card with another.
Peter Smith writes for creditcard.com.au, he worked for over 30 years as a commercial and litigation lawyer in the areas of both corporate and personal insolvencies, advising numerous clients facing bankruptcy, as well as acting for financial institutions in the area of debt recovery.