Now that you have made the commitment to stop using your credit cards, the next step is to create a budget. Although organizing your finances might not be the most enjoyable thing to do, it is a critical step if you truly want to take control of your finances. Not only will it allow you to better understand where and how you should be spending your money, it will also help you to better organize your resources so you can permanently cut your credit card debt.
We know that organizing your finances is not always easy, so we are offering you a couple of free tools you can use to help simplify the process. If you have Microsoft Excel installed on your computer, please click the button below to download our Monthly Budget Planner template:
Using the Excel version of our Monthly Budget Planner is easy. Simply fill-in or change any of the data fields that are in green. Feel free to experiment, it is impossible to break.
If you don’t have Excel, we also have the same template form available for you in a PDF format, although without Excel you’ll have to enter the data by hand and do the math on your own. (If you don’t already have a PDF reader, a free version from Adobe can be downloaded here).
For this version, you’ll first have to print the form out and then enter your data by hand.
STEP 1 – Calculate Your Income.
Filling out the form is easy. You’ll want to start by first entering the name of month and then filling in the left of the two columns labeled “Estimated Income”. If you receive a regular paycheck, be sure you only count your take-home pay after taxes have been deducted. If you are self-employed, calculating your monthly income can be a bit trickier because your income is less consistent, so your best bet would be to make a conservative calculation based on what your annual net income is after taxes and then divide that number by twelve. If you have any additional income such as a side business, part-time job, or overtime pay, make sure to include this as well. In the second column, we have also included an additional data entry field labeled “Actual Income” that you be filling out at the end of the month. More on how you’ll be using this later.
STEP 2 – Calculate Your Monthly Expenses.
Again, you will want to start with the left column marked “Estimated Expenses”. Most of these should hopefully already be listed on the form for you. These are the things that you simply can’t avoid paying, like your rent or your mortgage (don’t forget to include property taxes), groceries, utilities, insurance, car loans, student loans, credit card bills, etc… Sometimes it helps to go through your old bank and credit card statements to see what expenses you have had over the past six months just to make sure that you don’t leave anything out. For example, you may only go to the dentist every six months, so you’ll want to make sure that you divide that cost by six and include it as part of your monthly expenses, so you’ll have the funds available in your budget for when you make your next visit.
Next, you will also want to make a list of the everyday things that you still need to spend money on, but you think can possibly be reduced. For example, would it be less expensive to bring your lunch to work rather than buying it? Do you need both a cell phone and a landline at home? Can you get by with just basic cable and cancel all those premium channels? Or, if you have to have a cup of coffee on your way to work in the morning, are you able to forgo the $4.00 café’ latte for a $.99 cup of coffee from the convenience store? This alone would be a savings of approximately $60 a month.
Although it may not seem like much, these little one and two dollar savings you can make here or there can add up to hundreds of extra dollars over a month, and thousands over a year. Just the $60 a month you could be saving by switching coffee represents about $800 a year in credit card debt reduction. As you will see later when you use the credit card debt calculator, just a few dollars in savings a day can make a huge difference in just how quickly you will be able to cut your credit card debt.
Once you have finalized your estimated itemized monthly expense list, you’ll want to print it out and use it as a reference guide to see if you’re keeping your spending in check. If, for example, you budgeted $8 a day as your lunch expense, you’ll want to add up what you’re actually spending each day to see if you’re staying on your budget.
We’ve included the second expense column for your “Actual End of Month Expenses” so you can return to your Budget Planner at the end of each month to see how closely you stayed on your projected budget. Setting a goal and giving yourself the challenge of achieving or beating it makes the process a lot easier than thinking you are constantly depriving yourself every time you spend money on something. Once you adopt this mindset, you’ll be surprised at how much easier it is to discipline yourself and to stay on budget.
STEP 3 – Calculating Your Bottom Line.
Now that you have all of your finances in order, the next step is to calculate your bottom line. To do this, you simply need to subtract your monthly expenses from your income. (If you have Excel, this will be done automatically.) If you have extra money left over, you’ll want to use those extra funds to cut your credit card debt. If you’re still negative given all the credit card debt and budget planning, don’t despair because in the final article we will show a number of effective strategies to reduce your credit card payments and interest rates.
STEP 4 – Make A List Of Your Debts and Assets.
As your final step, you’ll want to make a separate list of all of your debts and assets. First, make a list of all your creditors and exactly how much you owe to each one of them. Also note the current interest rate each creditor is charging you. This is important because it will be the creditors who are charging you the highest interest rates that you’ll to want to pay-off first.
Second, also make a list of your assets. These include things like bank statements, investment accounts, stocks, bonds, retirement accounts. If you have access to a home equity line of credit or something similar which has a relatively low interest rate (other than credit cards), you will want to make a note of this as well for future reference.
Now that you’ve hopefully gotten your finances in order, we’ll next take a look at some strategies to cut your credit card debt for good.