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The past few years have really brought home the problem of personal debt and overspending. There are many of us who unfortunately live way above our means and are getting ourselves deeper and deeper into financial crisis. Facing and dealing with your finances will lessen your stress and worry. Even if you are one of those people in whose pockets money burns a hole and you seem incapable to hold onto any of it as the month goes by, there is hope.

It is never too late

There are some simple habits you can learn right now to help you get back in control and reduce your debt. You will need to be disciplined and committed. Constantly remind yourself of those big plans you have and that you are currently unable to put into action because of your debts.

Stick with the plan you put in place and you will eventually be able to take that trip to Tibet or Tel Aviv. Maybe you would like to take a photography course or a screenwriting workshop. Whatever your dream is, you may turn it into reality by following some simple rules.

Just face it

You will first need to evaluate your debt. Go over all your bills and a copy of your credit report. Do not flinch.

Create a spreadsheet and list each of your bills in the first column. In the second column, enter the interest rate on each account. The third column will contain the minimum amount payable per month for each account. In the last column, enter the current balance of each account. Make yourself a cup of fresh filter coffee and take a deep breath.

It is now time to assess your spending. You should make another chart for all your monthly expenses such as rent, electricity and water, food, phone, transport and anything else you might think of.

Crunch time

You now combine the expense and debt charts you drew up. By adding the minimum payment column (third one on the debt chart) and the total monthly expense, you will come up with the complete amount of money you need to pay out every month. By subtracting this amount from your pay cheque and other income, you will be left with a disposable income. Or not.

The plan

This will depend on how large your debt is and on your monthly expenses. There is very little you may do about your debt. Regarding your expenses, you may certainly cut down on many luxuries.

If it means using a carpool or public transport, do it. You might need to change your shopping habits. Take this opportunity to buy fewer processed products and make or grow your own.

Once you have created your budget, stick to it. Record every single expense, no matter how small. This will help you realise ‘where all the money went to’.

When considering your monthly repayments, deal with the bill that has the highest interest rate first. Every month, make the minimum payment for every bill, with one exception. Use whatever disposable income you have left to pay off the bill with the highest interest rate. Work your way down the list until you have paid off every bill.

Spend less than you earn. If you do not have the cash for something, you cannot have it. It is as simple as that. Again, if you are committed to getting out of debt and living a financially free life, you will need to be discipline.

Tags: budget, debt, money