Almost Debt Free: Making a Budget Possible
“Some of us think holding on makes us strong; but sometimes it is letting go.” — Herman Hesse
Merriam-Webster defines a budget as “the amount of money that is available for, required for, or assigned to a particular purpose.” As Nina pointed out earlier, not many people spend with purpose. They just spend without regard to how much they can afford.
It’s hard to reach people who don’t want to confront a problem. I was one of many Americans dangerously spending more than they earn despite the vast amount of information available about budgeting. Three years ago, the only budget constraint I acknowledged was an aversion to overdraft fees on my credit cards and checking account.
The truth is, I always knew that my spending was troublesome. I felt growing discomfort about my rising debt, and I didn’t know where to turn for help. Most information I found involved way too much self-assessment, tracking and follow-up for me to handle. There was also a terrible insistence to involve math in budgeting, and I hate math.
Rather than re-hash what many others have said in widely-available resources, I’d like to share my story of success with budgeting and debt-reduction that yes, did involve self-assessment, tracking and math. However, it’s the behind-the-scenes story that may persuade you that successful budgeting is possible.
1) Confronting Discretionary Income and Making a Choice
After I structured my finances with the immediate goal of reducing my debt-to-income ratio, I figured out how much discretionary income I have each month. See Mapping-Your-Future.org for one of the easiest-to-use and most accurate budget calculators that breaks down monthly discretionary income.
It was rather heart-breaking to see that I couldn’t afford my lifestyle with my discretionary income. In order to avert more debt, I would have to give up dinners at the hottest restaurants in the city; weekend getaways; gadgets; concert tickets and up-to-the-minute style clothes.
As my credit balances got higher, so did my credit limits. After reaching a height of nearly $7,000 of credit card debt, I figured that if credit card companies weren’t going to help me stop spending, I’ll have to do it myself.
Essentially, I made the choice to kick my credit line out of my spending budget and determine how else to define a real budget.
2) Sketching a Budget
I went back to my monthly discretionary income total and tried to determine a spending plan that wouldn’t leave me broke each month. Because I was carrying so much debt, I had little money to spend on anything other than bills. I decided to play around with the idea of what I would do if I had an extra $500 a month in discretionary income. Although I wasn’t looking at my actual discretionary income, I wanted to see how I could benefit from the fictional boost in finances and compare it to my actual finances.
3) Creating More to Budget With
Dropping my credit card spending habits alone wasn’t going to fix my debt-to-income ratio. By sketching a budget with extra money, I realized the only way I was going to reduce my credit card debt was by increasing my income.
I know making more money isn’t a quick and easy option for many people. I was lucky in the sense that I was able to find a higher paying job. The hard and crappy reality I found is that if you’ve gotten yourself into a lot of debt, you’re going to have find some way of earning more and spending less if you want to see your debts get paid down.
If there is any way you can work more hours, get a second job or find a higher paying one, by all means go for it. Earning extra money will come at a great sacrifice to your free time, but there is a bright side of sorts. You’ll have less time to spend the extra money on unnecessary expenditures, and thereby direct the increased cash flow towards your bills.
4) Studying and Adjusting
After I started making more money, it took several months to work on a budget. I made a knee-jerk reaction to stop spending on credit cards, but I still didn’t have a clear picture of how I spend my money. One way I was able to visualize where I was dispersing discretionary income was with expense tracking.
Expense tracking didn’t come easy. It was another habit I had to develop, but the reward for the effort was that I was able to tailor an effective budget based on my spending behavior. The more unnecessary spending I could cut down, the more money I would be able to free up in my budget to pay down debts.
Budgeting also gets tricky because spending tends to vary over time for a variety of reasons (ie, seasons, circumstances, mood, etc). However, another added value of expense tracking I found is that it allows you to respond to excessive spending in one area and reduce spending in another. Although it can be a pain in the butt to track each expense, the end result is that you get to avoid overspending discretionary income by monitoring your money outflow. In essence, even in the face of constant change, expense tracking allows one to stay within the boundaries of a budget.
I plan to discuss expense tracking in more detail next week when we release the Queercents Expense Tracker, available for download for MS Excel users. It’s a simple spreadsheet I designed that made tracking expenses incredibly easy and a powerful tool for creating and maintaining a budget focused on debt reduction.
Hopefully the information about my experience took away some of the mystery that surrounds the development of a workable budget. It’s entirely possible to live within a budget, but there’s no getting around the preparation and sacrifice involved. There’s no magic, and not too much math- only the determination to rid yourself of debt is required.