A little over 18 months ago, my ex and I made the decision we needed to do something about the debt. We were in WAY over our heads.
But action was needed! We had a recommendation from friends to speak with a specific debt management company. It always takes awhile to get the courage to make a call, but eventually get was done.
Step 1: Create a budget.
Step 2: Cut spending.
This really is a multi-step process, though. You need to look at what you are currently spending and then decide what action needs to happen.
Let’s face it most of us are living out side our means! This means you are spending WAY more then you are bringing in. AND most of us are acting like an ostrich, we have our head buried in the sand “hoping” that it goes away.
I definitely realize that sometimes there is an external event like illness or job lose that starts you on a path that you did not intent. But either way by starting on this process you are taking back control of your finances and making decisions based on your decisions rather than by default.
Let’s try this again with a more detailed look at it.
Step 1a: Download your last 3 months bank statement into a spreadsheet.
Step 1b: Review the spreadsheet, categorize everything.
this step will take a bit of time, I would plan for an hour. Start with income, go on to the big things, housing, utilizes, food credit card payments etc. I recommend starting with the categorizes high level on the first pass.
Step 1c: Breathe! and then look at how much above your income you are spending. a few dollars? a few hundred dollars? a few thousand? This could be overspending or it could be debt repayment.
Here is a spreadsheet template to start with budget sheet
I use Mint.com.
I added all my accounts. I can easily review each month to confirm or adjust spending categories. You do have the option to split items as well. For example at Walmart you bought groceries and clothes, you can split that out into the correct categories. Very cool!
And you can budget easily!
I was completely serious, start with the big categories, later you can move on to the fine details. Start here, start now.
For the first 6 months, I focused on 2 things – monitoring everything I spent and planning a way to increase my income.
For me that meant getting a job and moving to another city, not everyone will have that exact experience. The point is I had to make decisions about where I was going and commitment to make this a way of life.
A year ago August, I had a new job and I moved to new city…. the first two months I stay with a friend so I was able to save the money I needed for a deposit and first months rent, moving expenses and debt repayment, didn’t really leave me with much, but I still stuck to the plan. I started automatic savings plan right away and by December I doubled my savings.
Each month I am looking at my spending and my budget and each month I am tweaking it a little. As you can see on the screen capture to the right my Sacred Earth Partners category is in the red. Two things I am looking at here is everything being categorized correctly and do I need to trim the spending or increase the budget. If I decide that I need to increase the budget, then I would have to remove it from somewhere else. But I have all the data to make an informed decision.
In up-coming posts, I will explore options for a budget.