Your monthly budget will play an important role in your debt consolidation plan. After all, this is where you will get the funds to pay off your debts. If you have no control over your budget, there is a possibility that you will end up spending your money on things that are not important. When that happens, you might compromise the funds that should have been paid towards your priority expenses – like your debt payments.
According to a report, a lot of people fail to save for retirement even if they can afford it. Apparently, these people ended up spending a lot of money on nonessentials. If they had more control over their budget, this may have been avoided. To ensure that you remain in full control of your finances, you need to revisit your monthly budget. This has to be done regularly to ensure that your budget is still aligned with your current financial situation.
How to align your monthly budget with debt consolidation
If you are in the midst of a debt consolidation program, how can you make sure that your monthly budget is aligned with it? Here are the steps that you need to follow.
Take a look at your account statements
If possible, you want to get a whole year’s worth of account statements. This will give you an overview of how much you spent in a year. It might seem like a lot of information to go through but this is necessary if you want to be thorough. There are annual and seasonal expenses that you might miss if you only focus on your monthly expenses.
List all of your expenses
Once you have all the statements, make a list of all the expenses that you have made. Separate them into three groups: annual, seasonal, and monthly. For the first two, indicate the month when you need to have the funds for the payments. This will give you the chance to anticipate when the payment is due so you can prepare for it. The monthly expenses can be grouped into categories like food and groceries, utilities, debt payments, etc.
Get the average monthly expenses
After making the list, you need to get the total amount that you spend every year. Then, you have to divide it with the number of months in a year. This will be your average monthly budget. It is what you have to set aside each month so you can meet all your expenses – whether it is to be paid on a monthly, seasonal, or annual basis.
Compare your expenses with your income
This is the moment of truth. It is time to compare your expenses with your income. Determine your net salary – or your income after taxes. This is the amount that you can spend out of your income. If your net income is bigger than your monthly budget, then you do not have a problem. But if your expenses end up being bigger than your income, then you need to make a couple of changes. You might have to look back on your expenses to check which can be reduced. This will help cure your spending problem and ensure that you will not overspend or risk using the funds for priority expenses on something else.
Leave room in your budget
While you are adjusting your expenses to fit your monthly budget, you might want to make sure you leave room in it for extras. It is better to live below your means because it will leave you with extra money to save. Or, this money can be used for unexpected expenses. That way, if something happens, you will not be forced to skip your debt payments or sacrifice another important expense. If you do it right, you can save more money even while you are paying off your debts.
How to make budgeting easier during debt consolidation
It might seem like a tedious task but it is important for you to realize that budgeting can actually make your life easier. It will keep you from making mistakes that can compromise your future.
If you really think that budgeting is hard, you just have to find the right tools that will make it easier. For instance, there are apps that will help you track your spending. In fact, even banks have come up with an alert app that will give you a “Heads Up” when you are spending beyond the amount that you have set. This can be very helpful when you are trying to stick to your monthly budget. It will also keep you from compromising important expenses like your debt consolidation payments.
So how can you make budgeting easier? Here are some tips that you can use.
- Give your budget a purpose. When you have defined goals, it gives you the motivation to stick to it. These financial goals do not have to be big. It can just be a reward that you can give yourself in a few months – just to get you going.
- Do not forget to pay for your future self. Save for your retirement. Even if you are in the middle of a debt consolidation program you should strive to save even a small amount. Over time, that amount will grow anyway.
- Involve the people around you. Tell your loved ones about your monthly budget. Your friends should also be made aware of your attempts to control your finances. You do not have to go into detail, but at least they should know that you are trying to lower your expenses. While they may not give you money to help, they can at least support you in making smarter financial decisions.