If you're trying to pay off bills or save for a vacation, a budget is your first goal. Here are some tips you can follow for setting up a realistic budget to help you stick to your debt payoff plan.
Paying off your debts and staying within your budget is a nightmare. Without extreme commitment, you will probably lose hope or get tempted to spend, mainly if the debt is a big one that will likely take several months or years to settle.
The following steps and mental tricks will help you stay motivated and dedicated throughout the journey.1
Write Down Reasons Why You Want to Pay Off Your Debt
The first motivation towards debt payoff is taking into account why you think that paying off the debt is the best thing you would do at the moment. Derive most of the motivation.
- Why do you want to pay off your debt?
- Do you want to pay the debt to guarantee a more comfortable retirement?
- Or you intend to secure a better financial future?
- Or to have control over your monthly or annual income?
Whatever the reasons, write them down and keep referring whenever you are on the verge of despair. Doing it for a good reason gives you the strength to fight to the end.2
Have a Look at Your Income and Expenditure
Before you settle on the amount to put on debt payoff, it is essential to look back at your expenses for the past couple of years and make a projection of what your annual costs on bills for the current year may amount. Include all the statements and miscellaneous expenditure. Do not be too extravagant neither should you be unnecessarily mean with the figures.
- Now that you have the projected amount have a critical look at your income.
- What do you get from your main job?
- Do you have a second job and how much do you get from that?
- How often do you get paid? Weekly? Bi-weekly? Monthly?
Suggestion If you get paid bi-weekly, then it means you have 26 paychecks in a single year. So, divide the projected expenditure by 26 and that gives you the amount you need to set aside for your expenses from every paycheck. Whatever the balance from your paycheck is what you should consider for saving and debt repayment.3
Make a Realistic Debt Payoff Plan
Sticking to your budget as you pay off your debt is one of the surest ways to turn around your financial life. However, this is an impossible undertaking if you start it all up with an unrealistic payoff plan. Make sure you do not overestimate the amount you plan to repay. Try not to underestimate the duration within which you intend to clear up the debt.
SuggestionFrom the amount left after the projection of your expenses, set something realistic for debt payoff. You can also use a debt payoff calculator to find out what amount you need to arrange for the payoff but always know that your expenses projection remains vital.4
Write Down Your Payoff Plan
Honestly, you can't rely on your memory alone to get out of debt. Writing down your plan is a show of resolve and commitment. You will as well need these records to refer to and track down your progress.
ImportantFinally, it is important to note that debt payoff plans are bound to adjustments. Will you make adjustments when you did not put it down in writing? It's possible, but not easy. Just write your plan somewhere and stick to it. There will undoubtedly be setbacks but make sure the delays do not derail you.5
Track Your Progress
Keep track of your balances and see them come down. Be proud of your progress and keep making payments as per your budget. When you think that the speed is not as fast as you had imagined, don't despair. It could be the least payment permitted by your budget.6
Allow Occasional Overindulgence
The road to freedom from a significant amount of debt is an arduous process, sometimes even depressing. Sacrificing all year-long without enjoying yourself once in a while may discourage you from everything. Depending on your progress, take some time off to occasionally enjoy yourself.
Overindulgence is a once in a while expedition. It is important to spend on what will give you enough satisfaction for a long time. Again, do not blow the lid off your savings.7
Pay Extra Whenever You Can
In your payment plan, put down the minimum amount you can comfortably pay each month and stick to it. However, when you get any extra income, pay more than what is in your budget and plan. Paying more helps to cut the debt balance by a remarkable margin. Sources of this extra income could be dividends from your investments, a tax refund, and income from a second job, earnings from a new contract or just a bonus from your fulltime work.8
Celebrate Your Success and Keep Your Eyes on the Goal!
If you have someone to help you celebrate your achievements, then you will have your sights set on the final goal. Moreover, such friends will always help remind you and motivate you towards the goal. If you don't have a friend to share your achievements with, write them down somewhere or even post them on social media.