How can you structure your personal finances in order to prevent any more debt build up? We live in the land of consumer freedom. We have everything at our fingertips and plenty of ways to make it happen; buy online, home-delivered goods, extended payment plans, immediate credit opportunities and fast cash loans. Each day brings new spending opportunities on top of what we had the day before. We live in a never ending spending opportunity world. Most of us got lost and forgot what it is like to go without. Now that we have built such strong spending habits, how can we restructure daily finances?
It starts with a plan. It's taking a good look at reality and plan to change it. If you aren't ready to go into the whole budget, don't. You won't change a thing until you are ready to make a change. What do you need to live?
Break down your personal finances to basic needs
- You need a home. You could be paying rent or a mortgage, either way it has to get paid. Subtract that money from your monthly income. Do it one paycheck or split it up between the monthly pay cycles. Now that you know you have that much less to spend, move forward.
- Your home needs utilities. Make sure the lights will go on, the gas will cook the food and water will wash you clean. Subtract last year's highest bill from your paycheck and move on.
- A vehicle to get back and forth to work is important. Subtract the monthly payment, a third of an oil change and the cost of a few tanks of gas out of your monthly income and be happy.
- You have to eat. The average monthly cost for food is $800-$900. Give yourself $750 and make it work. If you have to buy all your meats on week and freeze do so. Not all meals have to have protein. Americans eat more than their recommended share. Buy perishables often and in small bunches to limit waste and give up conveniently packaged and pre-made foods. If you are down to the peanut butter and jelly sandwiches by the end of the week, its okay. Your body won't collapse and you will have incentive to make better choices the next month.
- Need a phone and internet? Get a plan that fits your needs without the bells and whistles. Subtract it from your monthly income.
- Subtract the minimum payments for each of your bills from what is left.
Anything left over is set aside for emergency or unexpected costs that pop up. It doesn't mean that you can overspend on your grocery bill or head to the mall. This money is earmarked to keep you from adding more debt to the pile. When the month is over put a fourth of it into the savings account and use the rest as an additional payment towards the bill with the highest interest rate. A second payment will decrease the interest charge for next month and will lower the minimum amount.
Keep working your spending plan until you have paid your debt off and can finally live comfortably within your income. Your habits will have changed. You won't spend carelessly anymore remembering what you went through. At this time, it would be a good idea to build a budget that will keep you living financially free and start building for your future.
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