Budgeting is a key step in reaching financial freedom when it comes to debt. Whilst the journey from day 1 to a balance of £0 may feel like an eternity, it is possible - keep going, we promise it’s worth it!
1. Make a note of all your income and expenses
It’s that time to do the one thing none of us like to do, look at how much we spent 😬 No, you can’t ignore the £75 you spent on a round for your friends on Saturday night, forever. The aim isn’t to make you feel ashamed of any spontaneous decisions you made - we are all guilty of splurging (especially when intoxicated!). The reason we encourage you to do this is so you can see exactly what you spend your money on and this enables you to figure out a realistic budget for your new style of spending.
2. Break up your expenses into categories
A budget is there to give you structure so it’s important to start by combing through your expense list and identifying what are necessities and what are not. Some examples of categories might be; travel, eating out, groceries and expenses. By categorising your spending, you can figure out how to allocate your money such as more funds to necessary purchases and less money towards the less necessary categories. However, don’t cut out non-essential spending, it’s important to treat ourselves every once in a while (we do after all deserve it)💅
3. Identify your debt
Identifying your debts so that you know what to budget for and how much you need to pay off is another key step. This includes knowing the total amount of debt you owe, the interest rates on your debts and the minimum monthly payments. This information is typically quite difficult to find, hence why our app gives you an overview of all your credit cards, detailing your total debt, your credit limit, how much you’ve lost in interest, payment due dates as well as many other helpful features - try it out yourself!
4. Choose your fighter (aka pay-off method)
Once you know where the money is going you can decide which payoff method to implement. Whether it’s consolidation, snowball, or avalanche (no we aren’t naming different snow formations, check out our mini blog series here), see which one works best for you and then you can start to set yourself some personal goals. How much debt do you want to pay off? How long do you want to take to pay it off? This will help determine how much money you need to allocate to pay off your debts each month and means you are more likely to achieve them if a structure is in place.
5. Try to stick to your plan
The final - arguably most important - step once goals and budgets are in place is to stick to your plan. This can be extremely difficult whether your debt total has been accumulated over a few years or within a short space of time. The toll money can have on mental health should not be undermined however, remind yourself of your why as it’s SO important to focus on your end goal in order to stay motivated and encourage you to smash through those goals 🎯