What is budgeting?
To get out of debt you’ll need to be on a budget. That is clearly one of the main tenets of the debt dissolution religion, from what I’ve been reading on other personal finance blogs. But what exactly does that mean?
The very start of this whole process started with seeing a debt lawyer. Bankruptcy is what she was espousing. I didn’t really want to (I’m not one looking for the easy way out, nor was it an attractive proposition – I would have had to do Chapter 13 since due to my recent raise and mega-overtime, I’m now just over the maximum of the Chapter 7 income cap). I’ll save the details for another post sometime, but the deciding factor was my income, and the idea that I would be put on a set budget. For 5 full years. The paperwork to qualify for the debt required that I look closely at my spending habits. Over the next week that’s what I did, as I looked at whether or not I should do bankruptcy.
I looked at my bank statements and credit card purchases for the last 4 months and compiled them into the following categories. Over several months it became obvious that my restaurant spending was out of hand, and also what average and regular payments I needed to make. Here is what I’ve budgetted for:
Food ($400)
Restaurants ($100)
Gas ($110, which lets me do a roadtrip if I want to)
Bills ($1190, includes rent, garbage, electric, gas)
Credit Payments ($355 on personal and SBA loans)
Pets ($100)
Coffee ($25, down from $60, and I’m trying to be under)
Liquor ($35, down from $60)
Entertainment ($50, down from $70, but realistically I’m trying for $0)
Photo (I do fine art photography, $40 for film and processing and printing)
clothes ($50)
fees/subscriptions ($30 average per month – this will cover my web hosting plus other misc. expenses)
home ($30)
car ($125 – I estimated I’d need to spend about $1500/year on maintenance & tabs)
cash (which I couldn’t track, but had and spent – $0 now, I like tracking everything on statements, so no cash spending for me), Medical ($500/year is what I have in my flexible spending account, so I hope to have none out of pocket).
Total: $2640. My income is $3000-$3300/month. That leaves me $360 – $650 for debt payment beyond the minimum payments. If I go under budget on anything, I could include that extra in my payments, but I think I will put it in savings for big emergency spending that sometimes occur and for deberred payments like semi-annual car maintenace. I can pay both loans with bank transfers instantly, and transfer unused money into my savings account, so I don’t need to write checks or anything.
I don’t carry cash in an envelope for each category and then when it’s done, oh well. I just keep track in my head or on paper and spend intelligently. I buy food when I need it at the grocery store, but I try to be under whenever possible, and I always shop with at list now. I have an entertainment budget but haven’t been to a movie in like 6 months, and stopped buying books to read (my achilles heel) by borrowing them from the library (their online system is an amazing thing).
For me, a budget is an educated knowledge and application of my spending habits. It’s not being rigid, but living responsibily, within my means, and trying to do better. I hope it works; the coming months will see!
Oh, and I think when I do my end of month budget I’ll have everything in a table format for easier reading.
