The Importance Of Developing A Personal Budget Plan
If you are not a ‘numbers’ person, either by nature or having been turned off mathematics at school, then you will probably find simple tasks such as balancing a checkbook or drawing up a formal budget, perhaps using a spreadsheet, a very off-putting task. However, developing a budget is essential if you are to get yourself out of debt and then stay that way.
If you already have a spreadsheet program then that is great and if you do not, but think you could find your way around one, then one excellent free spreadsheet program is available through the Open Office program at www.openoffice.org
If however you do not fancy the idea of using a spreadsheet then do not worry because it is easy enough to draw up a budget using a simple A4 sized notepad and a pencil.
Simply create two columns for your budget listing all of your monthly income in one column and your monthly outgoings in the other. Remember to add all of your regular bills such as telephone, groceries, gasoline etc. and add in an ‘extras’ entry of at least 10% for unexpected or impulse items. Also do not forget to add in your debt repayments putting in the minimum payments required for such things as car loans, credit cards etc.
Next draw up a second monthly budget plan but this time EXCLUDE credit card repayments, car loan repayments and one quarter of the amount included on your original budget for ‘extras’. Make a note though of the total for these three items.
Now put these two budgets side-by-side and take a good look at them. The total for your three excluded items represents a sum of money which you are paying for charges which you could avoid, so just how significant are they in relation to your overall income? If they are less than 10% then that is probably not too bad (although it is not necessarily good either), but if it is more than 10% then you really need to ask yourself whether or not this is a fair price to be paying simply to buy a few things sooner rather than later, because that is really what this debt repayment represents - money that you are paying because you bought items now rather than waiting until you had saved up enough money to buy them without drawing on your credit.
Of course only you can decide whether or not this is a price worth paying but do not forget that if you had waited a year to buy a $2,000 item for which you are otherwise paying a 10% APR you would have saved yourself $110. Or, if you are like most people and do not pay your debt off in the year but pay only the minimum payment required on your credit card each month, then you would have saved yourself a great deal more.
Drawing up a budget is a great way to illustrate just what effect running up credit bills has on your monthly income.
