Developing a Monthly Budget to Help You Pay Your Debt

Developing a monthly budget is a crucial step in the journey towards settling your debts and achieving your financial goals.

However, developing a monthly budget plan is only the first step. The power of a debt free life lies in your ability to diligently adhere to your budget plan.

The Importance of Developing a Monthly Budget

Budgeting allows you to use your money wisely. It helps you save your money while leaving you with enough to cover your expenses, gradually settle your debt while still having some extra cash to spend on yourself.

Most importantly, once you have managed to pay off all your debt, your budget can help you stay out of debt, leaving you with more money to save.

developing a monthly budget

How to Make a Budget Plan

Not knowing how to create a budget may be one of the single biggest hurdles that prevents you from developing a monthly budget to suit you and your individual needs and circumstances.

Below are 5 simple steps to creating an effective budget plan which will ultimately help you pay off all your debts.

Add up your expenses

This is the first step to creating a successful budget plan. In order to know where you stand financially, you need to know where your money is going to every month.

This can be done by looking at your bank statements as well as till slips or invoices that you’ve accumulated along the way.

It’s extremely important to be thorough in this step. Make sure to add all your expenses whether they are fixed or intermittent.

Add up your total spent over the last 6 to 12 months and then divide that amount by the number of months. This will give you your average monthly expenses.

For example: you’ve spent R45 000 over the last 6 months. Therefore, R45 000 divided by 6 months give you R7 500, which is your average total of monthly expenses.

How much do you earn?

Now you know that it costs you on average R7 500 to survive each month. The next step will be to look at how much you are earning.

Take into account your primary source of income such as your salary, as well as any other form of income such as your side hustle earnings, child support, investments or policies and so on.

Set goals

Before setting goals for saving or paying off your debts, you’ll need to subtract your monthly expenses from your total monthly income.

The aim here is to make sure you are earning more than you spend. If this is already the case, you can now look at your overage and determine your saving or debt-paying goals.

An important rule here is that if you have any debt whatsoever, every effort should be made at paying it off before attempting to save. Paying your debts off quickly will save you from paying high interest rates.

If you discover that you are spending more than you earn, then it’s time to look at where you can cut back.

Take a look at the small, seemingly insignificant expenses such as weekly takeaways or that cup of coffee you grab on the way to work every day.

These expenses might seem small, but over time they add up and could save you hundreds or even thousands of rand per year.

Work towards having at least 10 to 20 percent of your income left to either pay off your debt or save.

Take record, track your progress and re-evaluate

The best way to stay on track is to keep record of your expenses and income. It’s much easier to control your spending when you put it down on paper and compare it to your income.

Furthermore, you will feel more motivated to save when you can see how much you’ve managed to put away so far.

In addition, it’s important to re-evaluate and adjust your budget a few times a year, especially when there have been changes to your income or expenses.

Be realistic

By sticking to your budget as closely as possible, you’ll be more likely to reach your financial goals within a reasonable amount of time.

However, there are often unexpected expenses that arise, or you might feel like spoiling yourself to a movie or a nice dinner which you didn’t really budget for.

This is perfectly fine to do, but it’s important that you get yourself back on track immediately, to avoid falling too far behind.

Able Tracers - Debt Collection Agency Port Elizabeth

Developing a monthly budget plan will help you stay out of debt while you work towards your financial goals.

For more information on how to stay out of debt, or to find out more about our debt collection services in South Africa, please contact us.

 

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