How to Become Debt Free By Budgeting Your Money

Alright, so you somehow come upon debt free and are probably thinking about how in the world to get out from underneath a mountain of debt. This is a problem that baffles and eludes many people but the answer is much easier than the actions putting the answer in to motion. Though it is hard to get debt free, it CAN be done and we will guide you on the journey there.

The first major step in becoming debt free is in knowing where you are financially. Knowing where you are financially means you HAVE TO draw up a financial budget. Drawing up a financial budget is EXTREMELY important to your success. In order to become debt free you need to know what monthly income you have coming in and what monthly expenses you have going out every month. My personal budgets take this one step further; you also must account for expenses that are likely to occur annually, such as license registrations.

What typically goes in a financial budget? Below, you will see what a typical expense budget may look like for an average American.

Rent/Mortgage – $995

Auto Insurance – $120

Auto Loan – $395

Auto Loan #2 – $295

Life Insurance – $64

Water – $39

Electricity – $80

Garbage – $20

Natural Gas – $119

Childcare – $500+

Gasoline – $300

Groceries – $1005

Telephone – $39

Cable – $49

Internet – $49

Cell Phone – $100

Credit Card – $100

Student Loans – $101+

Total – $4385++

As we begin to start looking at the finances outlined above, each item taken individually doesn’t seem like too horrible an idea. But together things start to spiral out of hand. Shown in the above example financial budget we see almost $4400 of monthly expenses, AFTER taxes. In order for us to be able to BREAK EVEN on this caliber of budget we MUST be making about $70,000 per year. This budget doesn’t even include various items such as children’s doctor’s visits, and all the other annual crap we haven’t even addressed yet, like enrollment fees, the vehicle expenditures such as registrations and the one off mechanical failures that can cost a ton of money. It’s no wonder people are up to their eyeballs in debt. Most people don’t make $70K,$70,000 and most people have all kinds of oddball expenditures that aren’t accounted for on the above budget. In order to know where you can cut back, you have to know where your money is coming from and where it is going.

My first assignment for you folks out there going over this is to do this very first step. Make a financial budget and BE HONEST – it will do you no good if it isn’t accurate. Once we get this done we will be talking about such things as discretionary spending and debt equity. Let’s get our financial budgets prepared so we can begin working on a plan to BECOME DEBT FREE!!!

Richard DFO Hijinx has an article showing you how to create a budget