We have been following Dave Ramsey for about a year and a half to budget and pay off debt. We made the decision right after we had our first baby to pay off all of our consumer debt to set up a better future for our family. We hope to be able to eventually buy a home that is a little bit bigger than our current home and take our family on a vacation. Being debt free will hopefully also allow us to adopt a child, which is a dream of ours, but unfortunately so expensive.
The first piece of beginning a debt-free journey is to create a budget and stick to it- which is the hardest part in my opinion. Even if you aren’t following a plan to become debt-free, following a budget is beneficial to be in control of your money and to know where your money is going.
1. List all of the income you expect for the entire month.
- Add all of your income together to have an income total for the month. If you have an irregular monthly income, estimate how much you make per month and you should set up a budget using your lowest monthly income estimate. Have a plan for any extra income you may make within the month (ex: put any extra in savings, or apply extra to a loan.)
2. Write down all of your monthly bills, due dates and the amount you pay on them each month.
- Car Payment
- Insurance- Car, Property, Life
- Cell Phone
- Cable/ Internet
- Credit Card Payment
- Gym membership
- Union dues
- Medical debt payments
- Child support
3. In a separate column, write down all of the other bills you have that you don’t pay monthly.
- Some examples may be water, trash service, property taxes, insurance etc.
- I like to take each of these bills and save a little bit for them each month. I have a separate savings account I set this money in and when the bill is due I can easily transfer the money to checking. For example, our car insurance is about $700 every 6 months. ($700 ÷ 6= 116.67) I will save about $116 each month so that we can easily pay insurance when it is due. We save about $100 over a course of 6 months by paying it this way.
4. List all of the other monthly expenses you have and about how much you spend per month in each area. This may include:
- Schools activities
- Music lessons
- Pet supplies
5. Add all of your monthly bills and expenses together.
6. Subtract your monthly expenses from your total income.
- If you have extra money decide what you would like to do with it. Will it go into savings? Will you put the extra on debt?
- If your number is in the negative, you will need to reevaluate your expenses. Is there a bill that could be lowered or dropped? (ex: gym, cable etc) Are you able to earn extra income by picking up extra shifts at work or getting a side gig?
7. Adjust your expenses monthly
Part of Dave Ramsey’s advice is to have a “budget meeting” each month. If you are married, this would be with your spouse. Before each month, review your budget and add any extra expenses for the month (birthdays, gifts, holidays, vet visits, car repairs, etc.) It is important to give each dollar a name because it allows you to take control of your money instead of looking back at wonder where all of your money went.
Thank you for reading! Do you follow a budget?