The vast majority of debts are caused by poor financial education and a failure to properly plan for expenses.
The good news is, that a simple household budget can help most people to get back on track, eliminating their debts and allowing them to experience true financial freedom.
Everyone needs to have a budget, regardless of their income and expenses or whether they are in debt or not.
Budgets are designed to provide financial transparency and can be used to help you allocate your income so that you never overspend again.
Here’s how to build a simple budget to get you out of debt.
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The basics of budgeting to get out of debt
Budgeting may seem daunting, but really it is very simple and centres around two key factors:
- Your income.
- Your expenses.
Gather the data
The first step to building an effective budget that will get you out of debt is to assess your current financial situation.
Don’t leave anything out, compile a list of all of your income streams, all of your expenses, all of your current debts and any savings that you may have.
This process can be stressful, but confronting the state of your finances head-on is the key to rectifying any issues that lie within them.
If you’re struggling to make sense of your financial situation, then you may want to consider getting help from a credit counsellor who will be able to run through this process for you and who will help you to put your budget together.
Understand your debt
Next, you need to zone in on your debts to make sure that you understand what you owe, who you owe it to, how much interest you are paying and when your repayments are due.
Understanding your debts will stop you from missing repayment deadlines and will enable you to create a debt repayment strategy to ensure that you are paying off your highest interest debts first, which will save you money in the long run.
Assess your spending
Now you know what you have coming in, and what you need to be paying off, it’s time to look at where your money is actually going to see if you can make any cutbacks.
Take a look at all of your expenses, including your debt repayments, and categorize them into different categories such as Groceries, Travel, Mortgage, Eating Out, Debts etc.
Now that you can clearly see where your money is going, it’s time to see if you can divert some of your spendings into your debts to help you pay them off more quickly.
Budgets can change depending on the state of your income and your necessary outgoings, and so don’t forget to re-evaluate your budget regularly to ensure that you are making the best use of your available income.
Getting help with a budget to get you out of debt
The concept of budgeting may seem simple, but the act of putting one in place can be a lot more complex.
If you are struggling to create an effective budget, then you may want to consider reaching out to a Licensed Trustee who will be able to assess your financial situation on your behalf and can recommend a credit counselling session to help you learn the basics of budgeting.
Here at Bankruptcy Canada, we specialize in helping people from all walks of life to get out of debt.
To find out more about what we do or to be matched with a local Licensed Trustee, contact us today on (877) 879-4770 or by filling out our online form.
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