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Great tips on homesteading, frugal living, and self reliance. |
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The Budget - Your Roadmap to Debt Free, Frugal Living and Successful HomesteadingLiving without a budget is a bit like trying to find your way from Claremore, Oklahoma to Boston without a road map. You may get there eventually or you may not. The only thing for certain is you'll be burning a lot of fuel in between.An athlete preparing for a competition doesn't merely hope he will win. Instead, he comes up with a plan and then works daily to achieve his goal. 
The same goes for your finances. Unless you prepare a budget and plan to follow it daily, you will never achieve your financial goals. Without a long-term plan, you will never be able to save ten cents, let alone pay off your debts. A budget is crucial to your success. Without one, you are merely wasting time and a lot of energy. Oh, and a lot of money, too.Wouldn't it be easier just to take the time and plan now? Think Budgeting, Think PositiveSay the word "diet" to most people and it conjures up the words deprivation, suffering, and endless hunger. And that's a shame, because what diet really means is an eating plan. Instead of thinking, "No more sweets, no more burgers, no more fun," you could think of it as a way to provide your body with the best fuel possible to achieve your long-range plan of fitness, good health and happiness.Now that sounds a lot better than deprivation and suffering, doesn't it? So it is with your budget. This is not a suffering plan, where you are not allowed to spend anything ever. Instead, this is a spending plan. It's a roadmap, a route you mark out as the best way to get from Place A to Place B. Namely, from debt to freedom. What Are You Spending?
The first thing you need to do, is figure out what you spend your money on. Keep a journal with you for one month. Every time you make a purchase, write down your expense. That way, you will get an accurate picture of how you spend your money.You will be amazed at the amount of money that goes for frivolous expenses. Are you going to the coffee shop everyday? Consider making your own frappuccino at home instead, or buy a blender and keep it in the break room. Instead of going out, make your own frappuccino instead. By the end of the week, you will have saved enough to pay for the blender. Are you always eating out for lunch? Buy a pound of beans and rice. Cook them at home and take them for lunch. You could easily save enough to pay off a credit card within the year. The Game Plan
So where do you want to go? Do you want to go to Boston or California? What do you want in life? Do you want to get out of debt in the next five years,? Do you want to retire? Do you want to spend that summer you always dreamed of, hiking through Ireland?For any of those things to happen, it's absolutely crucial that you take the time to sit down and realistically assess the cost. Then you develop your game plan - your budget - which will show you how you're going to achieve it. Fresh Pachyderm, Anyone?There's an old joke that goes, "How do you eat an elephant?" And the answer, of course, is: "One bite at a time." If you're in debt, you probably didn't get there overnight, and you probably won't get out of it overnight either. Instead, you'll be paying it back one step at a time. The good news is you can, as long as you have a budget.Your Debt Reduction PlanLet's say you suspect you owe at least $10,000 to various credit card companies, but you've been dreading the truth. So you fix yourself a stiff drink (or in my case a large box of chocolates) and sit down to get an exact estimate.Here's the ugly picture:
If you only pay the minimal balance (and assuming you're still using the credit cards), your debt will steadily grow. Before you know it, you'll be swimming in bills.
But how do you pay if off? You're only bringing in $2,500 per month, and that's before taxes. You can't produce $11,000 out of thin air.The answer is to keep eating away at it. Stick to your budget, and always pay off what you have charged that month, along with a little extra. And naturally, if you're charging more than you can pay off, cut up your card immediately. So How Does This Work?Let's say you cut up major Card C and swear never to use it again. You still want to use Major Card D, but make the committment to pay off what you have charged each month. You put your department store cards in a drawer for now. Then you get to work.You owe Department Store E $630. Let's say you make the committment to pay off an extra $100 per month. You pay that balance off in six months. You now have an extra $112 at your disposal (the minimal $12 the company was asking for, along with that extra $100 per month). Instead of spending that money, you apply it to Department Store A. In eight months you get that paid off as well. Congratulations! You now have an extra $250 per month. Apply it to Department Store B, and you'll have that one paid off in five months. Now you have $350 a month, which you apply to Credit Card D, and so on. Bit by bit and with a little discipline, you'll be debt free in less than five years. Why Earning More Money Will Never Be the AnswerThe big temptation is to believe that if you just made a little more, you'd get out of debt. The sad truth is, the more you earn, the more you spend and the more you owe.Recently in the news, there was an article about a celebrity in danger of losing his home to the bank. This man has doubtless made millions in his life, and yet he is still facing foreclosure. It doesn't matter how much money you earn. Without a road map, you'll always spend more than you make. Consistently spend more than you make, and you'll always be poor, no matter how much you earn. So Where Will the Money Come From?
The extra money to pay off your debts will come by assessing what you're spending your money on and figuring out ways to cut back on needless expenses. That's why a budget is so useful.
Unless you're in the throes of dire poverty, (and if you're reading this, I strongly suspect you're not) you can make extra payments on your loans and you can save money.Again, the answer is not to make more money, but to cut back on your expenses. Food is always an easy way to do that. The great news is, you usually end up eating better while saving money. We'll explore those ways on other pages on this site. But for now, you need to establish your plan. One Example of a BudgetIf you don't already have a budget, here's an example of the one I use to keep track of my expenses. I created this budget in Microsoft Excel and if you want me to send you the spreadsheet, I'll be happy to do so. Simply contact me.Here's how it works. The amount of the beginning balance is $643.45. That's the actual amount that was in my checkbook on the first day of January. I keep track of the dates in column A and describe what I purchased in column B. In column C I list the actual amounts I spent and the remaining balance is in column D. My beginning balance is in cell B4. In cell D7 I write the following formula: =SUM(B4+C7). Hit the enter key and that formula changes into a number: 643.45. Now, write an amount into C7 (like 65, for example) and the amount in D7 changes to 708.45. Now click on D7 and hit the copy key. Then highlight the rest of the column D. Then hit paste. You now have a formula for the rest of the page. Now, whenever you enter an amount in column C under the amount, it will be added automatically to your balance. When you write a check, type a minus before the amount. For example, if you wrote a check for $22.98, write -22.98. Likewise, if you get income, make it a positive balance. This is a simple way keep your checkbook in balance and get a good idea of your expenses for the month. Make a copy of this worksheet for each month. Then make changes as necessary. With a budget like this one, after a month or two, you'll have a good idea of where your money is going and what expenses you can cut back on. Your goal is for your ending balance to be at least as high as, or higher than your beginning balance. Other LinksWhy raising chickens are a valuable way of practicing low-cost, non-wasteful living.How to get more done in less time. How frugal living is a crucial part of successful homesteading. Great tips for cutting grocery costs. Great ways to cut down on summer utility costs. Learn why managing your time is as important as managing your money. Ten great reasons to skip the fast food and cook at home instead. Get rid of the clutter in your life for a safer, saner and more efficient homestead. |
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