Life After Debt: Create a Budget

So you've done it. At last! Freedom from owing anyone so much as a thin dime. If this describes you and you are debt free - with the possible exception of your home mortgage - congratulations, but life doesn't end here, of course, in fact, it may just be beginning. Once you've reached a place of being free of any debt, in order to avoid getting back into debt, you should carefully craft a budget for yourself and your family that keeps track of every single dollar of your income and outgo on a monthly basis, but where to begin?

Start at the Top

First, remember that a budget is a guide, not a prison. If you need to adjust your budget (and you probably will), then go ahead and adjust it, just do your best to stick with what is written down rather than straying from the formula you have set for yourself. The first thing you will want to do with a budget is organize your required spending every month. Start with your food expenses - because if you don't eat, absolutely nothing else on the list will matter - followed by your housing expenses then your utilities. Make your utilities an estimate of your monthly amount throughout the year - that way, those bills that may fluctuate wildly (such as electricity or heat), you can save in the low months to pay extra in the high ones. Important items at the top, with the less important ones down at the bottom. Your budget should start to shape up looking something like this:

• Food: $450
• Savings: 5%-10% of income
• Mortgage: $1,100
• Fuel for car(s): $300
• Electric Bill: $200
• Gas Bill: $75.00
• Phone Bill: $65.00
• Cable Bill: $125.00
• Cell Phone Bill: $60.00
• Car Maintenance: $30.00

So far this list should pretty much be immutable - that is to say, it won't change much from month to month at all unless you negotiate with one of your utilities or the lender for your mortgage for a different rate or package. Again if, in the above example, your electric bill was only $115.00 in a good month, that doesn't mean that you have $85.00 that you can go out and spend - that money should stay in your account, saved up toward that day when you have a $285.00 electricity bill.

Add the Fun Stuff

Do you like to eat out a lot? Or maybe you enjoy catching games at the local ballpark, or going out paintball shooting every other weekend. You should budget for these things and every other niceties in your life. Draw a line representing the end of your necessities, and add these fun items below it:

• Weekly date night w/spouse: $75
• Eating out for lunch at work: $40
• Monthly dune buggy trip: $400
• Clothing: $100
• Birthday/Anniversary gifts for others: $50
• Yearly family vacation: $300

By now you should be getting near the end of your income level. Just be sure you try to think of everything that you reasonably spend money for on a regularly monthly or yearly basis so that you can include it here. Account for every dollar of your income and leave nothing left over. If you have to, pad your savings or investment amounts a bit to make up for leftovers.

Don't Get Discouraged

The odds are that your first budget is not going to be a success. You'll have forgotten something here, or overspent on something there. That's fine, don't let it discourage you and cause you to scrap the whole project, just make the adjustments as needed in the first few months and keep plugging away at it, trying to "color within the lines" or stay within your budget. In no time at all, you'll find yourself cruising along with your finances well under control and your mind completely at ease regarding money.

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