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This continues our series of “Mastering Your Debt in 30 Days”. For Day #1 of this series “When Debt Gets Out of Control” click here.

Day #2 - How To Write a Budget and Stick To It

One of the best ways to master your debt is to write a budget and stick to it. A budget is simply an outline of what your expenses are going to be (before you spend them). You write up a budget in order to spend your money wisely, to spend less than you earn and to save up as much money as you can. In the same way that debt takes money away from you in interest each month, extra money you have can be invested to BRING you money from interest each month. This is out ultimate goal, to let your money work for you.

Sometimes writing up a budget can be a very daunting experience because you don’t know where to start or you don’t know how to predict what you will spend accurately. So I have compiled some tips that I feel will be very helpful to you.

Start by recording your expenses
Before you start writing up your budget it is helpful to know how much you are currently spending each week/month and what you are spending your money on. It is preferable to spend 8 weeks recording what you spend before you start a budget, but I understand that 8 weeks is a very long time. 2 weeks should be achievable and enough to gather a rough estimate of where you spend your money and how much you spend.
Record your spending in different categories based on what you buy so then you can see where all your money goes. Try these categories to start with:
Home, Entertainment, Dependent Care (eg Kids), Food, Pet Care, Wearing Apparel (aka clothes), Education, Self Care (eg soap, toothbrushes, haircuts, manicures), Travel, Gifts and Cards, Personal Business, Health Case, Transportation, Taxes, Insurance, Savings and Investment.
If you can think of any more then you can use those too.
You can use a piece of paper to write up all your expenses, or maybe you can keep all your receipts and type them into an excel sheet on your computer. Do what works for you, but record EVERY expense.

Total Up All Your Income
The next step is to total up your income. If you have a spouse then you should be doing all these activities together as your finances are now combined, if not then just do it by yourself. Take into account your wage (minus taxes), and also any other income you may receive such as child support, investments, bonus pay or government support money.

Create Your Budget
Now it is time for the real stuff, writing up your budget. Don’t be scared by your budget and know that no budget is set in stone. It can be easily changed if your circumstances in life change. Head into the creation of your budget with the mindset that this is going to make your life better in the long run. With that in mind you will more likely enjoy writing your budget and you are also more likely to stick to following it knowing that it leads you to a better future.
Ok so how do we create a budget:
1. Get a piece of paper or use your computer (computers usually work better because budgets change often)
2. Decide on the categories your spending is divided into (see categories above for when you recorded your expense)
3. Write your categories down the left hand side of the page (use as many pages as you need to, these are your budget sheets; in an excel document this is very easy to do)
4. Now create 12 columns (one for each month). Now a 12 year budget is a great thing to have, but maybe you want to get rid of your debt in 6 months, then you could make a 12 month budget or just a 6 month budget to achieve your goal. Do what works best for you, there is no set formula
5. Write down all your expected expenses for each month in each of their categories based on the research you have done prior (where you spend your money and how much you spend)
6. Make a note of when your expenses are due (such as a yearly magazine subscription or insurance and rego on your car). Account for these as you may need to save for them in prior months or you may just need to spend less on other things that month.
7. At the bottom of each column total up your expense, then below that write your monthly income and then see what the difference is. If you are spending more than you earn then you will need to cut some expenses somewhere in your budget to pay back your debt until it eventually becomes $0, or even just something more manageable.
8. Keep your budget flexible. Things will change in life and your budget will need to change also, you will never get it right first time either so make sure your budget is flexible. If you spend too much in one category then don’t overspend that month try and cut it out of another category so you can save the same amount of money to minimise your debt

Stay On Track
Keep a record of all your spending so you can keep your budget up to date. Do your best to follow it and then put your excess money towards reducing debt or creating income (with investments that appreciate in value). Sometimes it is better to put money on your credit card which would cast you 13% per year to pay for than to put it in a savings account earning just 5% per year. Be smart with your money.
In order to stay on track there are a few quick tips I can offer you

Keep Focused on Your Future – Know what you want to achieve and keep that better future in mind as you decide to but some things out of your budget to save more money. As you begin to save more, pay off debt and invest your money, you will find you will not only master your debt but you will become wealthy with your money earning you money.
Stay Accountably To Someone – Be accountable to someone you know who is already doing budgeting well. They can keep you on track so you don’t give up. They can encourage you and challenge you and push you.
Sign Up For The Challenge – Sign up for the Fool’s Wealth Challenge to go from $0 - $1,000,000 in 12 months and receive free teaching every week from Ryan McLean to help you towards your goal. CLICK HERE to sign up

Go to Day #3 – Changing Your Consumer Mindset