Budgeting: The Secret to Ridding Debt for Good

For most people, the idea of setting a budget sends shivers down their spine. Generally speaking, this comes from a place of anxiety, of not wanting to set boundaries and limits to their enjoyment. That’s understandable, but far from sensible. Every fiscally-minded person knows that good credit and healthy finances start with a budget.

Of course, no one really wants to have to put themselves in this position.We’d all like to think that shopping trips and splurges could happen whenever the feeling struck — after all, they can all simply be stuck on our plastic friend until the end of the month.

The Cycle of Debt

These urges can at times be overwhelming, especially over Christmas, the dreaded ‘wedding season’, or those couple of months during the year when it feels like everyone you know celebrates their birthday.

The problem with this approach to spending is that it inevitably leads to bad habits and, in the long term, bad debt. If you’ve ever found yourself in the position where debt is becoming unmanageable, it’s likely due to the fact you were thinking short-term and slapping your spending on credit. The key to building positive credit and getting yourself out of debt for good is by thinking, and acting, with the long-term in mind.

And that’s where building a solid budget comes in.

Why is Budgeting so Effective?

It might seem counter intuitive, as budgeting requires you to limit your spending but creating a thorough, realistic budget actually puts you back in control of your finances.

Sure, nowadays you can download your monthly statements via online banking, and although this will show you precisely what you’ve spent that month, what you’re really looking at is a long list of places and prices. Now, you could go through these with a highlighter and pinpoint all the ‘luxury’ purchases made that month, but this is next-level financial control. It’s something you should definitely introduce, but only once you’ve got on top of budgeting.

One step at a time turns dimes into dollars.

A successful budget helps you take control of your money by forcing you to pause before clicking pay or swiping your credit card. Over time, you’ll begin to see where your money had been disappearing to. Budgeting clears the fog around your spending and creates a great overall picture of your spending. Trust us, you’ll be surprised just how expensive that extra espresso shot in your morning coffee becomes when looked at over the course of a month.

Tips for Successful Budgeting

Separate Needs from Wants

This is a big one and it’s so important to understand the difference. You’d be amazed how many times you say or think to yourself you ‘want’ that certain something throughout the day. It’s human nature to think this way. If anything, it’s animalistic. We’re all programmed to have wants. This was fine when we all lived in caves, back before the invention of money, bank accounts and credit scores. Today, needs should take priority over wants. You might need to allow a certain amount of money each month for your subway tickets. You need to pay your utility bills. You need to pay your taxes. And once they’re out the way,then you can think about your wants…

The distinction isn’t always that clear though. You need to feed yourself but you don’t need to order in Chinese food — that’s a want.

Think Before Spending

Ask yourself, ‘Do I really need to buy X?’ You’ll be surprised just how often the answer to that question is ‘no’. Whereas before, you wouldn’t have hesitated to buy that new top, asking yourself this question will give you the time to think about what you already have and whether you’re about to act out of ‘need’ or ‘want’. It takes next to no time to think and answer this question, and the impact it can have on the success of your budgeting — and finances as a result — can be profound.

Freebies are Your Friend

Always be looking out for freebies. You’ve probably seen programs that follow extreme coupon hunters on a mission to make their shop as cheap as possible. Well, you’ll have no trouble finding grocery coupons online, so you can join in on the fun. Store websites tend to have a newsletter signup, and though it means handing over your email, most of the time you’ll receive a discount code as a thank you. Stay subscribed as you’ll likely find they drop in freebies only available to newsletter subscribers. Bookmakers also regularly promote free bets and new-member deals, with places like Oddschecker bringing them all together under one site. So, you don’t need to go trawling the internet, spending hours looking for the best offer. Another top tip is to check out dedicated freebie sites. 

You’ll be shocked at how much this approach can save you in a relatively short amount of time.

Tomorrow Quickly Becomes Today

One of the smartest habits you can get into is preparing ahead of time to avoid unnecessary expenditure. You might need to pay for the subway, but that doesn’t necessarily mean you need to pay full price. Check out your local transit authority’s website and you might find that buying advance tickets or in bulk could save you a good amount of money. Avoid having to head out of the office at lunchtime to pay $5 for a sandwich by cooking in bulk on a Sunday, portioning out into bags and then freezing. Then,just before you leave the house every morning, grab one and pop it in a plastic tub for lunch. Better still, invest in a thermal drinks holder and fill it with fresh coffee every morning before heading out. Save yourself the daily $3dollar trip to the corner coffee shop. And if you think that’s too much hassle,consider this: prepping your coffee and lunch could save you $40 dollars a week. That’s $160 a month — or $1600 per year!

Things to Consider

So, once you’ve got your budget, stick to it. Having a budget in itself does not guarantee success. Write your budget down somewhere and regularly update it throughout the month, subtracting your spending from the starting total. If you’re comfortable with the idea, pin it to the kitchen fridge. If you have access to a printer, create a template you can print off 12 times at the start of every year and begin each month with a fresh sheet.

If you put all of these tips into action, you’ll undoubtedly find yourself coming across temptations in the form of deals that are seemingly too good to miss. The most successful budgeters out there remember to separate their needs from wants. It’s okay to treat yourself once in a while, but make sure these treats are an exception, not the rule. It’s very easy to fall into the temptation trap — the reason you began budgeting is to avoid it.

Start getting into these habits and you might even find that budgeting is fun. That might be a bit of a leap, but at the very least you’ll find a comfort in the knowledge that your finances are better under control.

Anum

Anum Yoon is the founder and editor of Current on Currency. She loves all things personal finance, which is why you'll find her work all over the PF blogosphere.