Recently, speaking with some of my co-workers about budgeting and getting debt-free, the statement was made to me “we aren’t even ready to start a budget.” My question is if you are in financial straights, how can you not budget??? Believe me it is hard — very hard to get started, but to get on the right financial path it is absolutely necessary. The very first thing you have to do to be successful is do a reality check with yourself about what you really owe. Remember — no debt is good debt, no matter what you may have heard.
Three years ago, when I sat down and looked at my world — I was shocked. I didn’t think I was doing too bad in life. I had just gone through a divorce and had a little more credit card than normal. I also had a surgery a few months before and had some doctor bills. But they were on a payment plan and I was not having any trouble making the payments. I had a car loan (for a brand new car), but everyone has car loans — right??? When I sat down and put all of the outstanding balances together, along with the monthly payments — I was dumbfounded. I was $40,000 in debt (with no house debt). How in the world did it happen. All my life I felt I was living within my means, making payments on time, had good credit — where did I get astray.
Let me say, it was easy to say it was because of the divorce. It is because of all the extra expenses I have had recently. Everyone has debt. I’m doing fine. But it wasn’t — I was $40,000 in debt and 50 years old. I decided now – not later, was the time to fix this problem.
The first thing I did was get organized and look at what I really “needed” to spend in a month. I then split this into two parts. I get paid two times a month, so at the top of the page I wrote what my income was and then subtracted everything due in the first of the month pay period. I then took what was left over on paper and added it to my income for the end of the month and subtracted everything I needed to pay the second half of the month. The first thing I noticed was the amount of money I had left over. Part of this is likely because I forgot a bill here or there.
The bigger part is because I was not controlling my money and it was dribbling out of my hands without even noticing. What I did to really help myself get on track is write down everything I spent — no matter how small the amount. I also switched to cash for my “allowance” which includes eating lunch out, personal care, stuff I just want — those type of things. Before this exercise I rarely had cash — it was easy to just pull out the debit or credit card. I also switched to paying cash for groceries. I was very disciplined — if I ran out of cash — I couldn’t spend any more money.
It was amazing to see where all of my cash was going, looking back over the years I was really not very good with money (even when I thought I was great). By controlling exactly how much I was giving myself to spend, I was really able to get a handle on all of those little drips in my cash. Even though I am now debt-free, I still manage my cash the same way.
After doing this for a month, I was ready to really budget — and really start the journey to debt-free.