At long last, we have made it to the final part. Using your sheet with all your debt, here's how we pay it off!
When you receive your paycheck every week, take your pay and subtract your expenses from it. For example: Say you make $425 and your weekly expenses (everything on your category sheet plus what you're putting in the Extra category) is $350. $425-$350=$75. You have $75 that hasn't been assigned anywhere. This number will probably change weekly, so be sure to calculate it with every check. Take this $75 and apply it towards the debt on the top of your sheet (the debt with the highest interest rate).
Also, at the end of each month (remember that fiscal month we talked about earlier), look at all of your monthly categories and see what you have leftover from the month. Take all of that money and add it to your debt as well. At the end of the fiscal year, do the same with yearly expenses.
You will continue this process until the top debt is paid off.
Once the top debt is paid off, take whatever you were paying on that debt (the minimum payment) and all other remaining money (extra from your paycheck + extra from monthly expenses) to the second debt. Once the second debt is paid off, take what you were paying on the first and second debt plus the remaining money and apply it towards the third. Continue with this until you are debt free! In the meantime, make sure you are paying the minimum payment on all other debts.
It is up to you, but I would suggest, before paying off any debts, to make sure you have an emergency fund in your savings. Take the $75 and apply it towards your savings until you reach your desired amount. Personally, $2000 keeps me comforted, but it depends on your own personal finances.
If you don't have any debt, (WHOOHOOO! That's great!), you can use this same procedure to save so that you won't need any debt in the future. As soon as our student loans are paid off we're going to set aside as much money as possible. I'd love to never have a mortgage or to have a very small one that is paid off quickly.
I'm sure this all seems very overwhelming at first. Just remember that hiding from debt and unknown expenses doesn't help anything it just puts off the inevitable and makes things worse.
If anything I have said is unclear, you think I may have said something incorrect, or anything else, feel free to ask and let me know!
"Which of you wishing to construct a tower does not first sit down and calculate the cost to see if there is enough for its completion? Otherwise, after laying the foundation and finding himself unable to finish the work the onlookers should laugh at him and say, 'This one began to build but did not have the resources to finish." Luke 14: 28-30
Showing posts with label Budgeting. Show all posts
Showing posts with label Budgeting. Show all posts
Thursday, September 2, 2010
Tuesday, August 31, 2010
Budgeting Part 4
Now that you have everything set up to keep track of expenses effectively, what about all that debt? When my husband and I got married he brought along his student loans. At first, it was extremely overwhelming. Since we don't have a large income, we couldn't qualify for a mortgage unless they were paid off. That's the day I sat down and created a budget and a system to pay off the loans. In 2 years time, we have paid off 2/3 of his loans!
To begin, gather all paperwork for your debts. You'll need to know the company, the interest rate, and how much is owed. This includes car loans, credit cards, student loans, and even a mortgage.
With this information, make a list of all your debt. At the top of the list you should have the debt with the highest interest rate and at the bottom the lowest. It may be overwhelming, but don't worry! When I first sat down and did this we had 5 or 6 student loan companies that we owed money to, some at 8% and others at 2%. It really opened my eyes to seeing what we owed but I looked at it as a game of how to get rid of it.
We'll be working with this list in the next and final part of this budgeting series when we talk about how to pay it off!
To begin, gather all paperwork for your debts. You'll need to know the company, the interest rate, and how much is owed. This includes car loans, credit cards, student loans, and even a mortgage.
With this information, make a list of all your debt. At the top of the list you should have the debt with the highest interest rate and at the bottom the lowest. It may be overwhelming, but don't worry! When I first sat down and did this we had 5 or 6 student loan companies that we owed money to, some at 8% and others at 2%. It really opened my eyes to seeing what we owed but I looked at it as a game of how to get rid of it.
We'll be working with this list in the next and final part of this budgeting series when we talk about how to pay it off!
Monday, August 30, 2010
Budgeting Part 3
In this section I decided that a visual would be the most helpful, so I created a video. Unfortunately, I write in pencil which is hard to see on this video but the basic information is still there. Also, my camera decided 3 minutes was long enough and stopped recording. Luck for you, I just got long-winded at that point anyway.
I find it really important to keep my receipts (not the ones for everyday purchases, but for car repairs, medical expenses, my electric bill, etc). This way, when it comes to doing taxes if I need anything they're all right there. Also, in the front pocket of my binder I keep any bills that need to be paid. In the back pocket I keep pay stubs.
I also have my own fiscal year. Our year begins on September 18. This is because that was the date I first sat down to create our budget. The 18th day of the month also marks the beginning of our fiscal month. Every month on the 18th I sit down and add what we allocated for that month in each category. For example, I'll add $50 to the electric section and $150 to student loans. For the expenses in the Yearly category, I add it the first day of the fiscal year and nothing is added for the remainder of the year.
At this point you are ready to start keeping track of your expenses! There are two more installments that I will write about, but they will not affect how you keep track of your money in your binder. Instead they will talk about debt and how to overcome it. So, get your binder organized and happy spending! Just remember, every penny you see will probably need to be written down somewhere.
I find it really important to keep my receipts (not the ones for everyday purchases, but for car repairs, medical expenses, my electric bill, etc). This way, when it comes to doing taxes if I need anything they're all right there. Also, in the front pocket of my binder I keep any bills that need to be paid. In the back pocket I keep pay stubs.
I also have my own fiscal year. Our year begins on September 18. This is because that was the date I first sat down to create our budget. The 18th day of the month also marks the beginning of our fiscal month. Every month on the 18th I sit down and add what we allocated for that month in each category. For example, I'll add $50 to the electric section and $150 to student loans. For the expenses in the Yearly category, I add it the first day of the fiscal year and nothing is added for the remainder of the year.
At this point you are ready to start keeping track of your expenses! There are two more installments that I will write about, but they will not affect how you keep track of your money in your binder. Instead they will talk about debt and how to overcome it. So, get your binder organized and happy spending! Just remember, every penny you see will probably need to be written down somewhere.
Thursday, August 26, 2010
Budgeting Part 2
Continuing with the lists that have been made in Part 1, let's figure out what your expenses look like for each paycheck. I will explain how to figure out expenses on a weekly paycheck, if you get paid every two weeks, simply multiply by 2.
From the Monthly list, take each figure and multiply by 12 (months) and divide by 52 (weeks). For example, for Rent, I have $500. $500 X 12 (months) = $6000 a year. Divide that by 52 (weeks) $6000 / 52 = $115.38. Do this for each of the items in the Monthly List.
From the Yearly list, divide by 52 (weeks). For Car/Rent Insurance I have $1000. After dividing by 52 we have $19.23 in the Weekly column.
Finally, add up everything in the Weekly Column. This will determine how much is needed every week to maintain this budget. Do you make this much every week? If not, it's time to reduce some costs somewhere! Do you need that cell phone? We got a TracPhone for emergencies which costs only $100 a year instead of $550. Is there a cheaper company for Car Insurance? Do you need cable and internet? How about hanging clothes to dry instead of using the dryer, that'll help with electricity costs.
Note that I do not include categories for food, clothing, and anything you would purchase from the store. Feel free to add money for that if you feel it would be helpful. I choose not to do so because it is not consistent. I'll explain that later, but be sure to have enough money left after determining your Weekly Expenses vs. Weekly Income.
Budgeting Part 3: "So now what?? How do I keep track of it all?"
From the Monthly list, take each figure and multiply by 12 (months) and divide by 52 (weeks). For example, for Rent, I have $500. $500 X 12 (months) = $6000 a year. Divide that by 52 (weeks) $6000 / 52 = $115.38. Do this for each of the items in the Monthly List.
From the Yearly list, divide by 52 (weeks). For Car/Rent Insurance I have $1000. After dividing by 52 we have $19.23 in the Weekly column.
Finally, add up everything in the Weekly Column. This will determine how much is needed every week to maintain this budget. Do you make this much every week? If not, it's time to reduce some costs somewhere! Do you need that cell phone? We got a TracPhone for emergencies which costs only $100 a year instead of $550. Is there a cheaper company for Car Insurance? Do you need cable and internet? How about hanging clothes to dry instead of using the dryer, that'll help with electricity costs.Note that I do not include categories for food, clothing, and anything you would purchase from the store. Feel free to add money for that if you feel it would be helpful. I choose not to do so because it is not consistent. I'll explain that later, but be sure to have enough money left after determining your Weekly Expenses vs. Weekly Income.
Budgeting Part 3: "So now what?? How do I keep track of it all?"
Wednesday, August 25, 2010
Budgeting Part 1
I've been obsessed with numbers for as long as I can remember, so budgeting has come naturally to me. It has been requested that I share some of my "secrets," so here you go!
This will be part 1 of a several part series so it can be well organized and thorough. For the purposes of this blog, I have not used our actual financial figures. I have used numbers that are easy to divide, multiply, and explain. In my actual budget I account for every penny that will be spent.
To begin, I make two lists, one with expenses that are seen monthly and another for yearly (although some can be interchangeable). These are the categories that we use, but every family is different so add categories as needed. Be sure to add any debts and the minimum amounts that you are required to pay.
Although it is very tedious and time consuming, it's very important to go through past bills to accurately assign amounts to each category. If it is not something that has a set amount, (ie. medical bills, electric, gas, cell phone) give a generous estimate. I will go over later what will happen when you have extra money in a category.
Part 2 will answer the question, "How large does my paycheck have to be!?!"
This will be part 1 of a several part series so it can be well organized and thorough. For the purposes of this blog, I have not used our actual financial figures. I have used numbers that are easy to divide, multiply, and explain. In my actual budget I account for every penny that will be spent.
To begin, I make two lists, one with expenses that are seen monthly and another for yearly (although some can be interchangeable). These are the categories that we use, but every family is different so add categories as needed. Be sure to add any debts and the minimum amounts that you are required to pay.
Although it is very tedious and time consuming, it's very important to go through past bills to accurately assign amounts to each category. If it is not something that has a set amount, (ie. medical bills, electric, gas, cell phone) give a generous estimate. I will go over later what will happen when you have extra money in a category.Part 2 will answer the question, "How large does my paycheck have to be!?!"
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