You have made a decision. You know something has got to give. You simply have to figure out a way to get out of debt. So you looked online for some instructions to set up a budget and started the process. It looks good on paper, but is it going to work? At this point, the chances are not very good. But with a little financial advice and a few important changes, your chances of controlling the situation greatly improve.
Here are some pitfalls that must be avoided if a budget is going to help resolve your financial difficulties:
1. The budget is not accurate.
In order to ensure that a budget accurately reflects your needs, it must reflect all income and expenses. Pull up your last two bank statements, and list all deposits and expenses. Don’t make the mistake of assuming that getting paid twice a month and every two weeks is the same. And don’t forget that taxes and other deductions come out of your check, lowering the amount of income you have to budget.
2. Overuse of miscellaneous categories.
Whether you call it “miscellaneous,” “house money”, “spending money” or something else, it means you have no idea what is being purchased and are therefore not controlling the spending. Small daily purchases like coffee on the way to work add up over time.
3. Lack of a savings element.
A full 10 percent of your income should be set aside for emergencies. Treat this deduction like any other bill that must be paid monthly. Without this component, every unplanned expense becomes a disaster. A flat tire will completely derail all of your hard work. This money is not a cushion to use when you overspend, but a lifeline for genuine emergencies.
4. The budget is too strict.
Most smokers realize that saving the cost of tobacco could bring them immediately out of debt, but the habit is not easy to break. A budget that depends on a lifestyle change this dramatic is on very shaky ground. The budget should also allow for some recreation. If you can find low- or no-cost fun, that is the optimal solution, but a budget that allows no fun is doomed.
5. Lack of commitment.
No matter how good the budget or how sound the financial advice, without a real desire to get your finances under control and to focus on your spending habits, you will not succeed. As you begin the process, accept the fact that it will not be easy and be proud of yourself for your successes. Watch your savings account grow and realize that you have accomplished a very important milestone in your financial life.
Getting your spending under control is the first big step in getting out of debt, but you may find that you are still in need of additional financial advice to get your debts paid off. Credit cards are designed to spread payments out, not pay them off, so you will need to double up on payments whenever possible to eliminate the debt completely. When you spend less than you earn, you will free up some cash to allow you to do this. Once you have taken the first big step of getting on a budget, don’t hesitate to take the second step and get more financial advice. You may also want to look into debt settlement.