Most people don’t realize how bad their debts are until it’s too late. But the clues are there are easy to notice. For example, you always wonder if you have enough money, then you have bad debts and need to fix your finances ASAP.
If you have already noticed these issues, then it’s time for you to start working on your finances. Budgeting can be hard to start when you’re in debt, but it’s the best way to have a healthy financial habit.
Budgeting Methods You Can Try
1. 50-30-20
It’s one of the classic methods that is also very easy to follow. You can also use this simple calculation to know your financial health.
In this method, you are dividing your income into three primary expenses; savings, and treats in the 50, 20, and 30 ratio based on your income.
All of your primary and regular expenses, such as rent, bills, and various installments, must be at most half of your total income. So if you earn $2000 per month, your maximum expenses are only $1000.
30% of the total income is for treats or other tertiary expenses, such as buying new clothes, bags, or even for dates and eating out. The final 20% is for savings.
Then how to do this budgeting when in debt? First, use the calculation when separating your bills. Lump all of your primary expenses, such as food, groceries, phone bills, and credit card installments, into this category.
Being deep in debt means you must be allocating at least 70% of your income to pay the primary expenses. However, in some cases, it can be as bad as 90% or even more than what you earn.
As the name implies, you must put these expenses as the main priority. And after you pay all of them, you keep some for savings.
Then what about all of the other expenses? Can’t you spend anything on fun? Unfortunately, you need to focus on getting out of debt and savings first before treats.
2. Envelope Method
Cash stuffing or envelope stuffing is a budgeting method where you have different envelopes for each purpose. You can be highly specific on this division, as in separating your money for each expense.
But if you have faith in being strict and disciplined, you can be more generic on the divisions and put more money there.
If you don’t know where to start, you can follow the 50-30-20 method when dividing the envelopes. Then you separate them further into each pocket.
Now, what if there are empty envelopes? Then it means you have to set your priorities and recalibrate your expenses.
Since you’re in debt, having empty ones is normal, and you should’ve expected this early on. However, you need to pay attention to which envelopes are empty and whether you have a backup plan.
For example, if the envelope for rent is empty but eating out has some, then you must move the cash. Rent is more important than eating out or subscribing to any streaming services. The focus for this method is to ensure all of the primary expenses, such as rent and bills, are paid the much cash.
Of course, with the latest technology, the term envelopes doesn’t mean literal envelopes. You can also divide your income by sending it to different bank accounts for each purpose. However, you’re risking losing money on the transfer fee.
Keys for Efficient Budgeting
1. Record all of your expenses.
This simple tip is the bane of many people. It’s tedious, tiring, and you may want to skip writing since the amount is too small. But the devil is in the details. These small expenses are what cause holes in your finances.
When you keep track of all expenses and income, you will see if you have any unnecessary expenses. It will be difficult at first, especially if you’re not used to keeping track.
However, it can make all the difference, especially since you’re. Yes, it will be difficult at first. But you can use a tracking app that will help you manage your expenses and records.
2. Resilience and Persistence
Having a strong mind is crucial for your budgeting success. When you have a lot of debt, you need to be persistent in overcoming this issue.
The first thing is to build your discipline in managing the budget. You also need to make sure that you can reach all of the goals you set.
Let’s be realistic and understand that you may have issues with clearing the debt. Therefore, you need to focus on the small goals, primarily on not adding more to your debts.
3. Stop Bad Habits
It can be that small treats you buy, or the weekly takeout. You are likely to have these habits that bleed money without realizing it.
Have you ever checked how much your coffee costs for the whole month? It may cost you a lot more than your monthly food budget.
One bad habit that you may have is to splurge on consumptive debts. Yes, gym membership is cheaper when you purchase it for a whole year. But it only gives the best return when you go to the gym at least 3 times per week.
Catching these bad habits early on will help you manage your money. And most importantly, you will get your priorities straight.
What If These Methods Fail?
Here’s the thing: budgeting is always likely to work. It has a small chance of failing.
But of course, the unlikely thing can happen. Yet, it’s very rare.
Unless your debt is more than what you earn and there’s no change in lifestyle or work, you won’t ever be out of debt. The only way to get out of the situation is to declare bankruptcy and start new.
Everybody aspires to be financially independent. Regardless of the economic turmoil, it’s only possible by having healthy finances. You don’t have to worry since there is always a way to get out of debt. All you have to do is have faith and work on your budgeting skills.