Welcome to part 2 of the most amazing side hustle yet – Budgeting. If you haven’t already read part 1, please take a look at it here. To recap, in part 1 we discussed how I determined what my expenses were based on my Income, Fixed costs, and Variable costs. From that, I was able to get a decent idea of where I stood on my spending and how much money I had to build wealth. I was also able to identify all of my debt. That’s the scary part. Just a friendly reminder, I am not an accountant or financial advisor. I just wanted to share what I did to be successful with money.
Part of building wealth for me was then to identify all of my debt. When I started out, I didn’t have a lot of debt and never really did until after my son was born. I guess you could say I was debt-averse. I learned from an early age that debt sucks. My parents always had credit card debt and lots of it. I swore when I got older that I would never do what they did. What they did do right, however, is to teach me the importance of saving money and gave me a great work ethic.
I have helped many people over the years get out of debt and those who use my system have been very successful. Now, as with anything it’s not easy. You have to be disciplined and you have to be willing to sacrifice. The following are the next steps in the process of how I got out of debt and started building wealth.
1. List all of your debt in order of largest to smallest.
There is so much debt that can you can acquire without even realizing it. I mean, when I go to a store like Best Buy or Lowes, they are always asking if I want to open up a credit card with them. And they will entice you with some really good deals. I will admit, I have fallen for one or two of these over the years. Below I have listed an example of the debt that I had. This list could be extensive for some.
I helped someone one time to get out of debt that had 23 items. It included everything from 10 credit cards to 3 cars, among other ancillary loans, etc. It was amazing to me but not unheard of. For the record, this person did get out of debt using what I taught her. I haven’t spoken to her in years so I really don’t know if she is still following the same principals. So, lets say you have the following debt listed below:
2. Determine how much money you can put towards your debt a month.
The good thing at this point is you know how much your monthly bills are if you have read my first blog. You will use that to determine how much to pay towards all your debt. In my example in my first blog on budgets, (snippet below), you see I have about $40 dollars remaining each month that is uncategorized. But you may also notice that I put a fair bit of money into savings. That will be key for this example.
If I really thought about it, I don’t need to put that much money away a month if I am carrying debt. I need to figure out what a good number is for savings and go from there. I was told 15% of your monthly salary should go into savings, however, when you are getting out of debt 15% of your monthly extra income is what I suggest. Seems like a good target. I will show you what I mean on that later in this blog. Now some say you should put every extra dime into paying off your debt. Meaning, no savings, except for an emergency fund, nothing in your 401k Contributions, nor Roth IRA, nothing.
I have found when its going to take you a couple years or more to pay off your debt, why not try to increase your savings at the same time. At a later point, if you wanted, you could use that savings to finish paying off your last bit of debt or you just add a month or two to paying your total debt off with a small piece of mind. Trust me, you will need more than a small emergency fund to pay things off as they come up. Life gets so crazy.
With that in mind, you can see I have $1540 that go into savings or is unaccounted for as an expense. I will admit, that’s a lot of money to a lot of people and I probably should have used a lower number for my example but I did try to keep it as close to real life as I could. At the time I started this, I didn’t have kids or a wife.
Next, I would take 15% of that and put it away in your savings a month. I know those of you out there have a different philosophy but this is what worked for me. That number is $231 (1540 x 0.15). I use exact numbers in my budget, I don’t round but do what is best for you. I consider this number as paying yourself first.
3. Rearrange your expenses according to what you have identified to pay.
Ok, you know what your monthly expenses are and what your major debts are. Now is time to put your money where your mouth is (pun intended). The next thing I do is rearrange my monthly fixed expenses. I have done that below. I also keep the debt list on the tab so I can see it every time I update my budget. I found this helps me keep focused.
As you see below, according to my debt list, I already have my Mortgage, and Student Loan in my fixed expenses. I then have added both credit cards. I will next look at the minimum payments on the higher balanced credit card and use that as my fixed expense number for my budget on that credit card. In this case it is credit card #2. That number should go down each month but I keep it the same regardless until the credit card is paid off. In this case it is $173 dollars. Last thing I do is take the remaining balance that used to be my savings and use that toward my smallest credit card to pay off. That number is $1136.
4. Start paying down debt.
Now its time to start paying off your debt. Each month you will pay what your budget says you should pay. It’s that simple right. Not really. As mentioned earlier this takes discipline and sacrifice. It is difficult but just remember if you are able to do this and get out of debt, you will feel sooooo much better. You will be happier, you wont wake up in the middle of the night thinking about debt. It’s very freeing.
The biggest challenge I have seen is with the variable costs. That is where my next blog will focus along with the tracking of the monthly expenses.
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Disclosure: Just a reminder, I am testing out numerous side hustles and one of which is making money through affiliates, as such, please keep in mind that this is a professional review site that hopefully will receive compensation from the companies whose products are mentioned and reviewed. Each product is tested thoroughly and only the companies that have the highest marks are mentioned. This site is independently owned and the opinions expressed are mine and only mine. I promise you that.