A budget plan is one of the important tools that will help you succeed in your credit consolidation efforts. If you really want to have complete debt freedom, you need to learn how to budget your money.
According to statistics, 1 out of 3 workers between the ages of 40 and 59 are prioritizing debt payments over increasing their retirement fund. If you are running out of time before retirement, you only have one chance at consolidating your credit balance. In case you fail, it might seriously compromise your retirement. Not only will you have a shorter time saving for your retirement fund, but you will also have to share your limited funds with your debt payments. That will make your retirement life really difficult.
So if you have to use credit consolidation to get out of debt before retiring, you need to make sure you have everything you need to succeed. One of the basic tools that you need is a budget plan.
The thing is, you need a specific kind of budget that can support your consolidation efforts. In case you do not have a budget yet, you need to start using one. Create a plan that will help support your debt payments. If you already have a budget, that will make your job easier. You just have to look at it and make a few revisions.
Tips while creating a budget plan during debt relief
A budget plan is very helpful – especially if you plan on doing DIY debt consolidation. It can be a really great guide and will help you control your finances. But even if you are working with a professional, you will also benefit from some basic budgeting efforts.
Here are some tips that will help you create a realistic budget to use while in the midst of a debt relief program.
List your basic necessity list of expenses
First of all, come up with a list of all your expenses. Once you have the complete list, select the expenses that can be included in your “basic necessity” list. This should only include expenses that you cannot live without. It is important to be disciplined and strict with yourself about this. Do not make excuses and include something that is technically a “necessity” when in truth, it is something you can cut off. For instance, eating out is technically a food expense but it is an expensive and thus unnecessary one.
While you are working on this, you might want to create a bare-basic budget plan. This is ideal for emergencies. In case something happens to your source or income or there is a need to pay for an emergency, you can use this budget for the meantime. This is a type of budget that has the lowest list of expenses. You need to stick to this budget until your finances return to normal.
Be honest about your income
Another tip for your budget plan is, to make sure it has your accurate income on it. Do not put an income that is too high because that might lead to your money falling short at the end of the month. At the same time, if you put it too low, it will be very hard for you to cover everything that you need. This might make you feel really restricted. Just be honest with how much you really get each month. If you get commissions and bonuses, try not to include it because this is usually irregular and inconsistent. If you have to, just get the low average so you will not fall short.
Save up for an emergency fund
It is also important for you to keep on saving for your emergency fund. If you already have a sufficient amount in your account, that will make things easier for you. However, if you do not have this fund, you need to save up for it because it will prove to be useful in the future. Life is unpredictable and this fund can come in handy while you are in the midst of paying off the credit you consolidated. When there is a need to pay for medical care or your car needs new tires or something similar, you have the money set aside to take care of that. You do not have to compromise your debt payment or borrow money to take care of that.
In case your finances are really tight because of your debt payments, that is okay. However, that is not an excuse to avoid saving. Just put aside a small amount. As long as you can consistently contribute to that amount, it will grow in time. A small amount will always be better than having nothing.
Set aside money for your allowance
Finally, you need to set aside money for your allowance – something that you can spend without feeling guilty. Some people, in their pursuit of debt freedom, forget to give themselves allowance to spend on anything they want. Without this allowance, they end up feeling guilty when they spend on themselves – and that is not healthy for your well-being. According to an article, harboring feelings of guilt will compete with your ability to focus on work and life as a whole. You need to have all your wits with you as you pay off your debts. Not only that, you need to protect yourself from feeling unhappy because that can quickly lead to feelings of frustration towards your financial situation.
If you set aside cash specifically for your allowance, you can train your mind to not feel guilty about spending it. This will teach you to be comfortable with spending on things that you really like – as long as it is controlled and a part of your budget plan.
Importance of a budget during credit consolidation
Regardless of your financial situation, you will always get something positive out of budgeting. While you are in the midst of paying off your debts, these are the two benefits that you will surely enjoy.
Helps you ensure that payments are funded
First of all, you can be assured that your payments will be funded – at least if you stick to your budget plan. Put your debt payments clearly on your budget and do not use the money on something else. Sometimes, people fail to pay off their debts because they accidentally spent it on another category (e.g. food, grocery). Make sure you discipline yourself to set aside this money and to guard it so it will only be spent on where it is intended.
Gives you full control of your finances
A budget plan is one of the tools that can really make debt consolidation work. It can give you full control of your finances. In case something happens that requires financial support, your budget will give you the information you need to make quick decisions. This can be very useful in times of emergencies. You do not have to guess how much you can afford – thus keeping you from compromising the important expenses like your debt payments.