Building a Bulletproof Budget

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Getting rid of debt is simple. The aim of the game is to earn more than you spend every month and use the surplus to clear your debt.

It’s simple, but it’s not easy.

There are dozens of tactics to get rid of debt – from  debt stacking/snowballing  to  avoiding common mistakes  - but it all starts with one step.

Build a bulletproof budget.

Without a budget, it can be too easy to overspend or spend on items that you haven’t accounted for.

We all know that budgets can be boring, tedious and painful to put together. That’s why so many people just don’t have one. But the process is as simple as you make it.

Here is simple guide to building a budget that will help you destroy your debt without being bored to tears.

  1. Where does you money come from?  If you have money coming from multiple streams, you need to account for them all in your budget. It might be tempting to leave an income stream out of the budget for “treats” etc, but remember that the goal is to eliminate debt as quickly as possible. This means tracking salary, interest, dividends, gifts, refunds/reimbursements, self employed/freelance income and any other source.
  2. Be thorough with your expenses.  The goal of a budget is to cater for all eventualities and leave you with (hopefully) a surplus that is very accurate and sustainable over the long term. This means including every type of expense you can possibly think of that might occur during the month. By including a budget amount for every conceivable expense, you make the surplus more accurate. Of course, you won’t spend the allocated money on everything each month, but that can give you an extra sum to pay off your debts. Areas of expenses should include all home and utility bills, transport (insurance, running costs etc), daily living, entertainment (movies, restaurants, gadgets) and any savings you need to make.
  3. Update your budget daily.  In the early days of budgeting, you’ll want to update it every day. It can take a full month to make it a habit so during this time you need to track cent in and out. Write a note in your diary to remind you or do what I do and set a daily alarm on your phone which alerts you. To make it even easier to update, set up a spreadsheet on your PC and it will reduce the amount of time needed to maintain the budget – making it more likely that you keep it up.
  4. Don’t second guess the budget.  In the first month, the budget might highlight certain areas where your actual spend starts to exceed your budget. Naturally, you might try to avoid spending in this area to keep it within the target amount. During the first month though, I’d say to keep your spending exactly as it normally is. This will give you an accurate picture of your spending habits so that you can consciously start targeting those particular areas. Without this knowledge of your weak areas, you would simply fall back in to old habits if you ever decide to manage your finances without a budget again.
  5. Set yourself goals.  Once you’ve been budgeting for a full month or more, you can start to set goals based on the trends. If you clearly overspend on eating out, you can set a monthly goal to reduce the number of times you eat out – thus reducing your expense. Write down your goals, share them with friends and family or even tweet Springcoin about them. Doing this will make you more accountable and increase your motivation to actually achieve them.
  6. Adjust the budget.  You’ll probably notice that you overspend on some items and underspend in others. Within reason, you can actually adjust these amounts to reduce the deficit. So if you spend hardly anything on gadgets but spend too much at the movies, you can adjust the values to fit your lifestyle better. A word of warning: don’t just use this to allow you to buy the things you want. You still need to have legitimate budget amounts in place for anything and everything you might spend money on. Don’t reduce your gadget budget down to zero to afford a meal out and then spend money on a gadget anyway. This can be a good tool to keep your lifestyle similar while paying off debt, but if abused it can cause further financial trouble!

Set yourself a six month goal to follow this budget guide and evaluate how it helps to to eliminate your debt. If you can make just a few minutes sacrifice each day to keep it up to day, you can pay off your debt much more quickly and this will free up your money to invest in money making activities instead.

Make sure you do account for every possible expense too. Doing this will make the plan somewhat lenient and allows for a margin of error. It’s vital to make sure you actually enjoy your life and aren’t stressed out, struggling to eat and miserable. If that happens, the plan will not last and you could end up on a big blowout spend session.

If you’ve built a bulletproof budget, or plan to build one, let us know in the comments how that process is going for you.

Author Bio:  This is a guest post by Ian from DebtConsUK, where he helps people in serious debt to simplify their finances. You can  grab his free budget planner  spreadsheet to help you build a bulletproof budget in even less time. Ian is also an active user on  Google+.


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