As the oldest child of a parents who had no clue about money and a mountain of debt to prove it, I would often see my mum calling utility companies requesting payment extensions, or hear the words “we don’t have the money” and sadly I ended up with the same bad money habits finding myself in my own mountain of debt.
These days I don’t have debt and are frugal (or stingy it depends who you ask) with money.
I have learned some good habits when it comes to spending and saving, one of the most important tricks I learned was…..wait for it…..a basic spending plan!
A Basic Spending Plan
What is this thing you call a basic spending plan?
Well, it’s just a budget made to sound less like a prison sentence, which is what most people think when they hear the word budget.
Using a basic spending plan, I was able to pay off the mountain of debt.
It was hard and very confronting when I first started my spending plan (just so were all on the same page I’m going to keep calling it spending plan, budget sounds so restricting!).
In a very adult way, I meticulously went through 3 months of bank statements, on a sheet of paper I made 4 columns, as I said very basic.
Income, Expenses, Assets, Liabilities
INCOME – this was paid fortnightly directly into my everyday account, I only had the one income source which was my full-time job
FIXED EXPENSES – these were the essentials, rent, food, utilities, health care, and transport. These thankfully were set up to come out automatically when I got paid
DEBTS – depressing so so depressing. I listed each one from lowest to highest noting the minimum payment & due dates.
OTHER EXPENSES – as it turns out I had a bit of a book addiction, eating out addiction, bottle shop addiction, hand bags addiction so on and so on….all things that were not detrimental to living
By now it was apparent that I had to cut back on spending and/or make more money.
Redoing the columns on a fresh sheet of paper expect the “other expenses” were cut from the team, I totalled each column.
Taking a calculator, I subtracted the “fixed expenses” from my “income” and the difference was what I had available to pay off debts and spend.
Looking at the figure, it made sense that I was in debt – let me put it this way out of the $1,638 per fortnight after living expenses I had $232.
Don’t Stess over your Budget Plan
In a very childlike way, I sulked and hated on the world for about 20 minutes!
Melt down over, I used the spending plan and added into the “fixed expenses” a payment to a high interest account it was only $5 per fortnight but it was the start of my emergency fund.
I then opened another account off my everyday account and paid $20 per fortnight into it – I ordered a debit card and this become my spending account.
Through some Googling I learned the importance of paying yourself and an emergency fund so I incorporated these as fixed expenses.
The amount left I used to pay the minimum payments when they were due, but I added extra to the smallest debt until that was paid then did the same thing with each of the other debts, I later found out this is the called the snowball method.
During this time, I also became a minimalist and sold a lot of stuff using the money to pay down debt and adding to my emergency fund once the debt was paid.
It was a basic start to ditching my debt, now years later I still have a basic spending plan just without all the debts!
It doesn’t have to be complicated use a piece of paper and pen, download an app, use excel but if you want to get debt free all it takes is making a start with a basic spending plan!!