Beating Broke

Personal Finance from the Broke Perspective

  • Home
  • About
  • We Recommend
  • Contact
  • Privacy Policy

Powered by Genesis

Killing Debt? Have a Realistic Budget

September 24, 2012 By MelissaB 9 Comments

Do you have debt?  Does it drive you crazy?  Do you stay awake at night wondering how to pay it all off?  Does it feel like you will never pay it off?  Do you argue with your spouse about your bills?

While debt can at times be a useful tool (student loans, for example), when it comes time to pay it back, debt can be a heavy burden no matter if it is good debt or bad debt.  Debt can cause marriage problems and even affect your health.

If you have decided enough is enough, and you want to be free of debt once and for all, you might be tempted to slash your spending and put all of your extra money on your debt.  Be careful, though, because this type of plan can lead to a quick crash and burn much like a person on a crash diet will only follow the plan for a few weeks before giving up.

Before you even begin to put extra money on your debt, you must first create a realistic budget.

What Is a Realistic Budget?

A realistic budget is one in which ALL of your expenses are taken into account.  Perhaps you pay your car insurance every 6 months, and it is $400.  If you want to create a barebones budget so you can pay off debt, perhaps you don’t consider this payment, which can be a mistake.  When the car insurance payment is due, where is the money to pay it?

We have been paying down our debt aggressively, and we made the mistake of not having a realistic budget.  We did have a $1,000 emergency fund, but because so much of our extra money was going toward debt repayment, we continually hit months where we had expenses such as the semi-annual car insurance payment and no cash to pay for it.  We would rob the emergency fund to pay it, and then we would have to stop our extra debt repayment for awhile to build up the emergency fund.  This cycle creates its own stress.

A Realistic Budget May Mean Hard Sacrifices

When you add up all of the payments you have to make in a year that don’t come in regular monthly intervals, you may be surprised.  There is car insurance, house insurance, license plate tabs, vet bills if you have animals, car repairs and maintenance, children’s athletics, and clothing for the family to name a few.  Add up how much you spend on these, and you probably easily have a total in the thousands.

That is thousands of dollars that are unaccounted for in your budget.

Almost a year into our debt repayment, we finally made a realistic budget.  We were shocked to see that when we set aside money each month for a portion of our annual or semi-annual payments (like $67 for our semi-annual car insurance payment), we didn’t have enough income to cover our realistic expenses.  As a result, we had to make some hard sacrifices such as cutting cable completely and pulling our daughter out of her expensive preschool.  These sacrifices weren’t easy, but making them did relieve some stress.  Now we no longer have ups and downs in our money flow.  We set the money aside, and when the bill is due, the money is there to pay it.

We may not be able to put as much on our debt every month, but we have a set amount for repayment above the minimum payment, and any extra money that comes in also gets put on debt.

Creating a realistic budget can help you avoid the stress of not having enough money certain months to pay all of your bills when semi-annual and annual payments are due.  However, you will feel more in control of your money, which can create a positive cycle.  The more in control of your money you are, usually the more money you find to pay on your debt.

What irregular expenses give you financial difficulties?

MelissaB
MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.

Filed Under: budget, Debt Reduction, ShareMe Tagged With: budget, budgeting, debt, Debt Reduction

Comments

  1. Jeff @ Sustainable Life Blog says

    September 24, 2012 at 2:51 pm

    this is a great point melissa – Too often when I started off paying my debt down, I was way too over ambitious. Id put like 45 cents in my eating out budget, but there were some times where it was unavoidable because of previous commitments that I had made.

  2. John says

    September 25, 2012 at 5:31 pm

    Such an important article. One of the mistakes my wife and I made when we first started budgeting was just budgeting for the average month. We neglected to take into account irregular expenses, like auto repairs or special occasion gifts.

  3. Adrian says

    January 2, 2013 at 3:06 am

    Keeping expenses under control is very important. And to do that it is mandatory to maintain a monthly budget. I am doing this for a few years already and I say that it pays off. I started first with an excel sheet, later I realize there are free online tools which helps you to do that.

  4. Michelle says

    December 21, 2014 at 12:32 pm

    We have not really budgeted in our semi annual bills like our gas bill and garbage pick up. And sure enough, when we get the bill, it is like a big surprise.

Trackbacks

  1. Carnival of MoneyPros - September 29th - Young And Thrifty says:
    September 29, 2012 at 3:49 pm

    […] Broke @ Beating Broke writes Killing Debt? Have a Realistic Budget – If you have decided enough is enough, and you want to be free of debt once and for all, you […]

  2. Celebrity Foreclosures, Underrated Jobs, Millionaire Advice and a Carnival - Wealth Artisan says:
    October 1, 2012 at 7:06 am

    […] Broke @ Beating Broke writes Killing Debt? Have a Realistic Budget – If you have decided enough is enough, and you want to be free of debt once and for all, you […]

  3. Need to Make Some Extra Cash? | Roundup says:
    October 6, 2012 at 12:09 pm

    […] Killing Debt? Have a Realistic Budget – Melissa explains the importance of adding in all costs when writing a budget. So many people forget to do this! Read what types of expenses you should consider when making your next budget. […]

  4. Weekly Shout Outs: Columbus Day Edition says:
    October 12, 2012 at 7:18 pm

    […] Killing Debt? Have a Realistic Budget (Beating Broke) In the process of debt payoff, one of the easiest mistakes to make is being overzealous on your budget. Luckily, Beating Broke talks about how you can make sure to set a budget that you can stick to. […]

  5. Do We Inflict Peer Pressure On Ourselves? - Beating Broke says:
    January 15, 2014 at 9:36 am

    […] husband and I are digging our way out of serious debt.  We are scrimping and saving, knowing that in a few short years we will be out of debt and can […]

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  • Facebook
  • Pinterest
  • RSS
  • Twitter

Improve Your Credit Score

Money Blogs

  • Celebrating Financial Freedom
  • Christian PF
  • Dual Income No Kids
  • Financial Panther
  • Gajizmo.com
  • Lazy Man and Money
  • Make Money Your Way
  • Money Talks News
  • My Personal Finance Journey
  • Personal Profitability
  • PF Blogs
  • Reach Financial Independence
  • So Over Debt
  • The Savvy Scot
  • Yes, I am Cheap

Categories

Disclaimer

Please note that Beating Broke has financial relationships with some of the merchants mentioned here. Beating Broke may be compensated if consumers choose to utilize the links located throughout the content on this site and generate sales for the said merchant.

Visit Our Advertisers

Need to change careers? Consider an Accounting Certificate Program from WTI.