Get Out of Debt

GOOD – Get out of debt!

Debt is an emergency. No matter how you slice it, debt is a huge problem today and it has no intentions of slowing down. Whether it is student loans, auto debt, credit card debt or even a mortgage, debt knows no boundaries. Consumerism and advertisements promote a life of live now, pay later (YOLO) and get what you want when you want!

If you do not think your debt is serious, use an amortization calculator and input your debt. I just ran numbers for just our student loans – $107,764 in interest is what we will pay over the next 20 years (Read more about our student loan debt here).  What is your number? Throw in the mortgage and see how much you will pay in interest over the next 30 years. All that money going to interest is money you could save or invest.

Back In The Day

I used to rationalize my debt, but when I thought about people from the good ol’ days I thought of my grandpa. He never had or used plastic. He only used cash. Talk with someone from the good ol’ days and they bought only what they could afford. If they couldn’t afford it they did not buy it. Simply put. As I read Total Money Makover, I realized that consumerism and banks want you to buy. They want you to take out credit. And they want people like me to go away. So in order to GOOD where should you start? My answer is simple: with a budget.

Budgeting Problem

I recently read a figure that 7 in 10 adult Americans do not use a budget. This is alarming, especially when considering the fact that 40% of divorces are related to financial stress. Most complaints I hear seem to revolve around income, and not the surplus of it. Two years ago I was one of those people that did not have a budget. My wife and I decided to get serious in 2016 and our budget was a huge asset. Budgets create accountability. 

I thought it would be beneficial to share the budget sheet we use. It is nothing special. It includes a monthly expense/living forecast tab. The two additional tabs are assets and debt tabs. In the upcoming weeks I aim to expand more on the debt wax ball tab walking people through the debt snowball (I will call wax ball) and how we have used it to our advantage and then some.

Budget Sheet

 

Why YOU need a budget:

  1. Take control of your finances with a living forecast

  2. Hold yourself accountable & have financial goals!

  3. Budgets keep you honest when you identify high spending categories.

  4. Knock out debt and create financial freedom quicker

  5. Accomplish goals

  6. Plan ahead !

 

 Money Life Wax – GOOD Sheet

Step 1: Take the time to actually create a budget. Download the file here, (preview above) and rename categories that apply to you (Just leave the categories that do not apply blank, do not delete the entire row). Everything is auto-summed monthly and yearly giving you a monthly and annual breakdown. I included a fictional sample in the download. 

Step 2: Back-fill the previous  2-3 months prior to starting your budget. This is important. It shows your spending habits. For example, if you are starting your budget today in the month of August, you would want to show your spending from May – June – July. It will help you see where your money went!

Step 3: For the current month, list the money you aim to spend in each category. This is your goal. Maybe you were spending $800 on groceries and now your goal is $400 (Read more about: Grocery Saving Tips!). Now you have targets and a living forecast based on the budget you set for yourself.

Step 4: Weed out and cut down on excessive categories. After back-filling 2-3 months and setting goals, now you can begin to target the areas where you spend the most money. Personally, this step netted s $840.00 alone, see below. 

 

Step 5: Figure out what % of your earnings are getting spent. Take the monthly expenses and divide it by the monthly earnings. The goal is to work towards 40/60, 40% spent and 60% used against debt or stashing, with an eventual goal of living off of 30% of your income. 

Step 6: Fill out the asset and debt snowball tabs located at the bottom. These are not the focus at this point. Budgeting and developing budget habits is priority numero uno. Once you have a budget then you can see what you got left over monthly and that is when those two tabs will become essential. 

Read how to take $600 a month and pay off $60,000 in just over three years!

Step 7: Track your spending. I realize filling out spreadsheets monthly can be a bit tedious. I think using a spreadsheet to setup your budget is important because the ACTION of creating and completing a spreadsheet will hold you accountable.  Tracking is simple thanks to apps like Mint. Additionally, most bank accounts will let you categorize your spending, but I just recommend linking everything with Mint. Mint will even notify you if you are approaching a budget limit. 

Step 8: Revisit your budget monthly. This is huge. Set up times to go over your budget with your significant other one time a month for 20 minutes. No significant other ? I recommend finding a trusted person to talk with to hold yourself accountable, since most people naturally justify their spending habits (YOLO). 

I hope this helps and feel free to use it, find another, or do with it whatever you please. I just aim to be a reference for what has helped us. Feel free to share or email to someone who may benefit!

Q: What budget or app do you currently use? Comment below. 

 

Read how we paid off $100,000 using a HELOC accelerator program

Your future self will be glad you read.                  – Josh

One Reply to “Start with a Budget! Get Out of Debt”

Leave a Reply

Your email address will not be published. Required fields are marked *