How to Budget and Become Debt Free

As we all know, life is always giving us lemons. Unfortunately, sometimes these lemons are sour. When you come across tough times, and your wallet is lighter than you want it to be, don’t despair. Just because you can’t make lemonade right now, doesn’t mean your glass will stay half-empty forever.

Lucky for you, you’ve found our go-to guide for building a budget and becoming debt free. Read on to learn how to sweeten your finances and refill your bank account.

Tackle the Essentials First

With any budget, you need to first account for your most basic expenses. Most likely, these will be your fixed expenses each month, not accounting for the money you spend on leisure, entertainment, shopping, and eating out.

These expenses include:

  • Rent or mortgage payments
  • Utilities
  • Transportation
  • Car payments and gas
  • Insurance
  • Groceries
  • Childcare
  • Pet care
  • Household essentials

Once you’ve calculated the minimum amount you’ll be spending per month, subtract this amount from your monthly income. Whatever is left over is your disposable income. But before you yell “yippee” at all that extra cash, remember that you can’t spend it all at your favorite minimalist stationery store just yet.

Make Saving a Monthly Habit

Next, you’ll want to put some of your disposable income into the following must-have accounts of any fiscally responsible individual:

  • Savings Account – This should be a basic account where you slowly save money for future big expenses that arise from starting a family, building a home, or Mari-Kondoing your entire closet and realizing you have no clothes leftover. Consider a high-yield savings account to make some extra cash without lifting a finger.
  • Debt Repayment – Debt is tricky but not insurmountable. Before adding to your savings account or splurging on a wild night out, make sure you’re chipping away at your loans and credit card debt each month.
  • Emergency Fund – While this fund doesn’t have to live in a separate savings account, make sure you’re also saving six or more months of income in case of job loss, an economic downturn, or a sudden injury. This money should remain untouched unless you absolutely need it.
  • Retirement – With the money you have leftover, consider putting your money in a 401(k), IRA, or Roth IRA.

Luckily, you don’t have to type up a fancy spreadsheet if you don’t want to. Instead, use a free budget calculator to make your life just that much easier—after all, you’re already putting a lot of effort into breaking that tricky shopping habit.

Don’t Forget the Fun Stuff

Even though budgeting and debt-reduction require discipline and responsibility, you don’t have to eliminate fun things entirely. Budget for miscellaneous expenses each month so that you always have some wiggle room for a guilt-free purchase (or a night out).

However, if you’re short on disposable income after repaying some debt and growing your savings account, consider replacing some of these “fun” expenses with investing in your health and wellness instead.

The key here is to stick to that number. Once you’ve hit your miscellaneous spending limit, that’s it for the month.

Put on Some Gloves and Create a Debt Snowball

The debt snowball concept is simple: gain momentum on your debt by tackling your smallest debts first, then moving on to your bigger debts until you’re debt-free. Another version of this strategy suggests that you tackle your debts with the highest interest rates first, followed by the next-highest, and so on and so forth.

How to Budget and Become Debt Free

Get an “Accountabilibuddy”

Having an “accountabilibuddy” (someone who helps you stick to your budget) can be invaluable when it comes to the often-intimidating world of budgeting and debt reduction. This is especially true if you’re new to tightening up your spending habits.

Whether you’re trying to shave off a few pounds or improve your finances, having another person hold you accountable (and vice-versa) is an excellent strategy to stay on track with your new budgetary goals. This person can be a friend, family member, significant other, or virtual pen pal.

For optimal results, try to implement these strategies with your brand-new accountabilibuddy:

  • After you’ve put together a basic budget, share it with your buddy so they can help you keep tabs on where you’re overspending.
  • Write down both your financial goals in a shared document.
  • Jot down your weekly expenses in a spreadsheet and hold each other accountable for breaking limits in certain areas.
  • Plan celebratory (and affordable) activities to reward yourselves for meeting your goals.
  • Debrief every few weeks and come up with actionable changes you can make to stay on track with your budget.

As they say, it takes two to tango—and the same goes for spending responsibly! When it comes to budgeting, you don’t have to go at it alone.

Stay Positive and Keep Your Eye on the Prize

Before you start your journey to debt freedom and budgeting mastery, remember to forgive yourself for whatever got you in a bind in the first place. Everyone makes mistakes and has some slip-ups here and there. It’s what we do in response to these mistakes that matters. With that, stay positive, pick yourself up when you fall.

Written by nikola

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