Personal Budget Planning


Time to trim the fat! 

Based on our example, I could advice going “Cold Turkey” and eliminating all miscellaneous expenses resulting in a slight positive cash flow of $70. Would most people follow this advice? No. The purpose of this exercise is to learn life long debt management skills so that after your credit is repaired, you will continue to maintain good credit.

Start by cutting 50% of your miscellaneous expenses. The first month will be the hardest.  You may not be able to go out as much with your friends and family.  They may even complain but they will get used to it. 


Your goal should be to break-even in month 2. This means that your “IN” and “OUT” must be equal.  Examine expenses such as lunch. I cannot tell you how many people spend between $100 to $200 per month on lunch.  Going out to lunch with your coworkers is a good way to network but you don't have to do it everyday - try reducing the frequency to 3 times a week

Once you are in the black, you are spending within your means and not above your means.   This is a key achievement - you no longer need to accumulate expenses that you cannot afford on credit cards. Your credit balance goes down (slowly but surely) even, if you are paying only the minimum balance. I call this “Stop charging and keep paying .”

Paying the minimum loan balance is okay but it will not get you out of debt. Most credit cards calculate the minimum due balance based on you paying back the debt in a gazillion years. This is how they make money - interest. The only way for you to pay off the credit card balance is to pay above and beyond the minimum balance.

It's time to find ways to earn extra money so that you can keep paying more towards the principle.

NEXT: Earn Extra Money