Increasing your income, is as much about what you do with the money your earn, as it is how much you earn. You need to learn how to control debt as much as controlling your spending. It’s pretty common to hear about people that have well excess of $20 000 in credit card debt, and well over $50 000 in accumulated bad debt. I’ve even known people that end up with more the $100 000 in credit card debt.
When you sit down, and look at your finances it’s pretty easy to feel like your suffocating, and most of us would rather bury our heads in the sand and not have to address the problem. Hate to be the one to tell you this. The only issue here is it doesn’t fix it self.
You need to do two things.
- Realize you are the only one that can fix the your crushing debt problem
- The second thing is take action.
Whenever I‘ve felt myself getting of the right path and onto a that path that leads you to think at the end of each week is where did all my money go. I take the following steps to bring me back to being in control of my money.
6 Steps to control debt you need to learn right now
Step 1 – Where is the money going
The first thing I do is pick a period of time and write down every single think I spend my money on.
I get paid on a Thursday, each week, so I will usually start on a Thursday, and write down every single thing I spend my money on. It doesn’t matter what it is, $1 on a stamp or a $150 on a weekly grocery bill, I will generally do this for at least 2 weeks if not 4. So I can best gauge any unforeseen expenses the might pop up.
I use an EXCEL spreadsheet, and I literally write down everything I spend. It doesn’t need to be fancy just a simple excel spread sheet with a few columns,
This is an actual screen shot of my weekly totals .
Step 2 – Put it into Spending Categories
Classify your expenditure into categories that you are spending your money on. So if your spending money on food for lunch. You might classify it like this
- Lunch – $50 – Food
Or if it’s a Night out
- Movies – $50 – Entertainment
- Dinner – $50 – food
Step 3 – Total Spending Categories for the period
Total your spending categories for the period. So if you are writing it down over a two week period it might look like this.
Week 1 Week 2 Total
Food – $200 Food – $100 Food – $300
Entertainment – $75 Entertainment – $100 Entertainment – $175
Clothes – $100 Postage – $4 Clothes – $100
Rent – $400 Rent – $400 Postage – $4
Loan – $200 Loan – $200 Rent – $800
Loan – $400
Step 4 – Deduct your income from your spending categories
Once you have the totals to you category, total them up over the period you have been writing them down.
Now I want you to write the weekly NETT amount you receive every week. At the top of it. And deduct from this amount your category totals.
This is the amount you are left with every week. It will show you the approximate amount that you are spending each week. If its negative guess what, it means you are spending more then you earn. If its positive it means that you are ahead a little bit each week, and that’s called savings.
Step 5 – Review your finding, find where to cut your spending.
Reviewing your figures here are essential to the next step, If you have a family sit down with them and review it together, it’s a great way to teach young children about the responsibility of money and debt.
Out of this review, you should be able to identify areas of which to cut back as an example.
- If you are single and spending $1000 per month on entertainment – you might want to consider halving that to $500 per month (or less).
- If you are a young couple with no kids spending $2000 per month of food and drink – you might want to consider looking to cut it back to $1500. ($500 into saving goes a long way)
- If you are a couple with 2 kids – and are spending $1000 per month of take outs, you might want to consider looking to eat at home more often and saving $500 per month.
The figures you’ve worked out above will form the basis of your Home Budget, this budget will become the corner stone of your household economy.
Step 6 – Pay of your debt with the excess
Put that extra money you’ve found into you debt. As an example
If you have a $2000 Credit card debt. By doing the above steps you have found and extra $200 per month, pay that $200 straight into your credit card. Get rid of that debt as soon as possible.
I have not heard of too many people that have sat down and done this exercise and not found money that they could save every week. And I must make this point, gaining control of your debt is not a easy or particularly fun thing to do. But once you do it, you will find yourself feeling better as you will control of your money.
Remember – its not what you earn, but what you do with it that matters.
I hope that help sits 6 simple step to control debt. It might take you a little time to get it under control, but the above exercise is worth it.
