Budgeting and Debt: Why the Two Go Hand in Hand

For the first time since I was 18 years old, I don’t think about finances that much.

Why? Because I have been on a budget for 17 months straight.

For several months, I have focused on getting out of debt — and even though I am not done with debt payoff yet, I live completely worry-free about finances. It’s a beautiful thing.

Besides creating a monthly budget, I also automate my finances. Without doing these things, we have no “roadmap” toward debt payoff; we must know where we are and where we need to go financially while paying off debt.

Why is a budget so important for managing debt?

Our  budget is our roadmap.  It gives us direction, especially when we have a load of debt to pay off.  You could successfully get out of debt without a budget, but how long would it take and how much would it cost you?  It’s a very inefficient way to proceed.

Living out a budget will make getting out of debt much easier.

A budget will help you figure out exactly how much you can afford to spend to get out of debt.  It will show you, on paper, your plan of action.  Once you create it, you may realize that your goal of debt freedom is attainable in a short period of time.  Or, you may see that more income may be needed, or cuts made.

Once your debt’s paid off, a budget will help you keep your finances on track to keep you from getting back into debt. A budget will help keep your spending under control so you don’t have to rely on debt to make ends meet.

How I Deal with Finances

As I said, I’ve automated most of my finances. Here’s what I do:

1. Income is streamed into my checking account automatically. My income is all electronic, so I never deal with checks. In a couple cases I’ve purposely set up electronic payments when previously I was sent checks.

2. Savings & investments are automatically taken from the checking. If it’s not automatic, I might forget about it. Forgetting about it is a good thing when it’s automatic though — I will check every few months and see how my savings and investments have grown.

3. Other bill payments are made automatically. All of my bills are on automatic monthly payments. I never worry about paying bills. I just make sure there is enough in my checking account at all times to cover the total amount of my bills.  These numbers are reflected in my budget each month, which is easy to create.

A Simple Intro to Budgeting

Budgeting is not that hard, it just takes a few months to get it right. You just need to sit down and do it, and not put it off. Here are the steps I’d recommend:

1. Write it all down. Make a few easy lists. The lists you need: all your monthly income amounts (estimate an average if you have irregular income); list all your mandatory payments (like rent, auto, power, groceries); list debt payments. See how much (if any) you have left over — if there isn’t much, see the next step.

2. Simplify. See what “mandatory” payments you can eliminate. This might take time, but many things are optional. For example, I eliminated cable TV, magazine subscriptions, a car payment (going from two cars to one), and more. Also, see what discretionary spending you can eliminate while you’re trying to reduce debt — Starbucks coffee, eating out a lot, buying magazines, etc.

3. Make savings and debt payments first, each payday. Make that mandatory, even if they’re small at first ($50 each maybe). Try to increase them as you continue to simplify.

4. Make mandatory payments next. Rent, car, utilities, etc. Make them automatic if possible, but if not go online and pay them right away each payday.

5. What’s left over is spending cash. Maybe it’s for groceries, gas, and fun money (eating out, etc.). If you have difficulty not spending your grocery and gas money so that they last for two weeks, put the amounts you think you’ll need in separate envelopes — one for gas, one for groceries, one for fun money.  I use the cash envelope system…it works!

6. Long-term moves. Over the long term, you want to decrease and even eliminate debt, one debt at a time, preferably using the debt snowball method. This will free up a lot of your money. You also want to start saving for an emergency fund immediately, and build it up over time.

This is crucial, as without even a small emergency fund you’ll never smooth out the bumps that inevitably come up. Increase income if possible while you’re getting out of debt.

Budgeting and debt truly do go hand in hand.  I learned the hard way; I got into massive debt and then created a budget “roadmap” to get out.  Now that I am almost debt free, however, the budget will stay with me forever.  I will be able to use the debt payments for savings, retirement, college, or anything.  

So go ahead…start that budget!

 

About the Author:

A native of NJ, trombonist Anthony Mazzocchi has performed with the Los Angeles Philharmonic, New Jersey Symphony, San Diego Symphony, San Diego Opera, Riverside Symphony, Key West Symphony, in various Broadway shows and numerous recordings and movie soundtracks. Mr. Mazzocchi serves as faculty or guest lecturer at The Juilliard School, Manhattan School of Music, Montclair State University, NYU, Mannes College of Music, and Kean University. He is director of Fine and Performing Arts in South Orange/Maplewood NJ, as well as serving as Executive Director of the Kinhaven Summer Music School in Weston, Vermont and Professor of Trombone at Montclair State University in NJ.

Visit Anthony at YouOnlyDoThisOnce.com or on Facebook at YouOnlyDoThisOnce.

  • http://twitter.com/RFIndependence Pauline

    Great post Tony. A budget will easily help figure out where you spend too much, or don’t get value out of your purchase and accelerate the debt payments. The hardest part is to get started but once you gain momentum, debt will shrink in no time.

    • http://twitter.com/kinhavenmusic Anthony Mazzocchi

      Thanks for following me around the blogosphere, Pauline! Yes, getting started is the toughest part…

  • Eruvyreth

    Thank you for lining this out so simply…this is exactly what I needed..now I have some idea of how to start!

    • http://twitter.com/kinhavenmusic Anthony Mazzocchi

      Glad I could help. Good luck!

  • http://twitter.com/Eyesonthedollar Kim

    A budget and tracking spending has to happen if you want to get out of debt and stay out. Like you said, It really doesn’t have to be complicated. Budget nerds of the world unite!