Self Help Debt Settlement - Steps to Help You Negotiate Your Own Debt (Part 1)

This article is part of a series of articles dedicated to helping consumers get out and stay out of debt. This article is about budgeting: The real way to avoid debt problems.

Budgeting:
The real way to avoid debt problems

It’s a simple formula. What you make, must line up with what you spend. If you need to spend more, you have to make more. Mastering this simple formula will save you from getting behind on payments and being unable to pay off mounting debt. The easiest way to get this under control is a written budget. A written budget requires you to spend on paper, what you intend to spend during the month. So, where do you start, what do you include, and how do you make a budget? Here are some good guidelines.

Income

This is as simple as it gets. What do you make very month? Be sure to include all job income, expected bonuses, and child benefit money. Also, don’t round this number up, or you will find yourself dealing with as shortfall. Be realistic. Take into account anticipated day-offs or shortage of income. If you find, that your expenses don’t match up with the amount of money you are making, you need to take action. The first step you’ll need to consider is reducing your expenses. The other step you can consider is increasing your income. You can do this temporarily by selling items on Ebay, taking on a second job, or adding a roommate. If these things, don’t appeal to you you’ll need to look at a more permanent income boost like changing careers or creating some investments.

Expenses

Here are the things that should be considered in a budget.

Food:

First and foremost, you should plan to eat. This part of your budget involves going to the grocery store, and not out to restaurants. Grocery shop with a shopping list, as you will find it easier to not spend money on things that are unnecessary.

Heat, Electric and Water

This is also an essential that you should consider first. Make sure to keep on top of this, as well as look for energy-saving tips that will make this an easier pill to swallow every month.

Rent/Mortgage:

You need a roof over your head. If you find that you have the potential to get behind on this talk to your bank or landlord, and they may be able to be flexible with you. As a rule, combined with heat, electric, water, and property taxes this should account for no more than 30% of your income.

Transportation:

Some forms of these expenses are essentials and others are luxuries. You will need to account for transportation that will enable you to fulfill your regular life duties. Try to avoid costly car payments or leases. Buy a car with cash, and hold off from buying a more expensive car until you can pay with cash. You can also consider using public transportation. You will also need to account for gas costs, insurance costs, and car upkeep cost.

Phone and Internet


This is perhaps an expense that has been rising over the last decade. Most people in your house will have a cell phone, consider a family plan with restrictions on texting and long-distance phone calls. If you have a landline, try to reduce the features, as to not have it coincide with cell phone features. An example being if you have a good long-distance plan on your cell phone, don’t put one on your landline and make all long-distance phone calls from your cell phone. Nearly every home has internet access, try to get in included with your phone bill for the most aggressive pricing package.

Medical Insurance:

Whether, you have some coverage from work or your own plan, be sure to keep on your premiums, you never know when there needed. Also, if you know of big medical expenses are coming up, start to save as early as possible, so you need to put aside less per month.

Television:

This can also be paired with your phone and internet package on occasion. Only pay for channels and order channels that are watched to avoid unnecessary costs.

Health/Beauty:

This includes soap, shampoo, cleaning supplies, etc. Buying in bulk is always cheaper as items rarely expire. You also will need to budget in biweekly or monthly haircuts.

Charitable Donations:

This will include all gifts give to charities or churches. Be sure to track these as they are usually tax deductible and will increase your income tax refund.

House Expenses:

It’s a good idea to have a slush fund of a couple hundred dollars per month to pay for unexpected house problems. This will avoid unneeded stress if the toilet overflows. You should also make sure you are covering your yearly property taxes and insurance. Many times, these items are included in your mortgage, but if not set aside money on a monthly basis.

Entertainment:

Although, it should be a final priority, it is healthy to spend time and money on fun. This will make for a healthy home environment.

Other Yearly Expenses:

Some bills won’t be monthly, but will be need to be paid on a yearly basis. To anticipate this, take the payment and divide it by 12 and you have your monthly payment. These expenses include vacations, new clothes, new furnishings, education cost, etc.

Savings and Investments

Develop a plan to save three months of expenses in case of jobless or unexpected expenses. Also, consider how you will prepare for your children’s education and retirement, by developing savings plans that fit your goals and comfort levels.