I’ve been reading around the blogosphere, and there are many people who have successfully gotten themselves out of debt. Some have paid off huge amounts of debt. They each have different ways of doing so, but they all agree on one thing… If you want to succeed in paying off your debt, you need to write a budget. Well, I finally decided it was time to prove that I could meet my debt pledge. So, I made a budget. And it’s both better, and worse, than I expected!
The potted history of my budget
I’m the sort of person who can tell you exactly how much money they have at any given time. I have highly complicated spreadsheets which calculate exactly where my money is going for the next six months, and sometimes longer. And I guess this has been something of a budget for me in the past. Or it always gave me a general guideline of how much money I had to spend each fortnight or month.
In fact, my spreadsheets are probably better described as “cashflow statements” as they describe when money is coming in, and when it is going out. If I wanted to be cynical, I might think that this was the lawyer in me wanting to ensure that I was never insolvent. The definition of ‘insolvent’ is being unable to pay your debts as and when they fall due. So the timing of a payment or a bill can be critical to whether or not you are solvent.
Occasionally I’ve sat down and written a budget, I’ve usually looked at it and nodded my head that I had a small surplus, and promptly forgot about it.
Which, I guess, is how I’ve ended up in this horrendous situation.
Because, it turns out, budgets are not that useful if you don’t stick to them!
So, I think it’s fair to say, that I’ve never seriously had a budget before. Well, no longer! Today, I took the time to prepare a comprehensive budget of my expenses.
Some articles I read suggested that you need to track your expenses for 3 months to see what you’re spending your money on before you write your budget.
But that just wasn’t going to work for me. I can’t afford to wait 3 months before I start chipping away at my debt!
So, instead, I logged into the internet banking for each of my accounts (credit, debit and other) and did a brief summary of my expenses in various categories over the last 2 months. In particular, I was looking for direct-debits and other routine bills.
The categories I looked for were:
- Groceries / Entertainment / Eating Out – I’ve never cooked much, so it made sense for these categories to be blended since I largely eat out twice a day. Yes, it’s excessive and it definitely has to change.
- Insurances – life, income, car, pet, other.
- Transport – uber, public transport, car costs.
- Utilities – phone, internet, electricity, cable, etc.
- Subscription services and memberships – iCloud, Apple Music, Netflix, etc.
- Debt payments – these were listed out individually.
- Luxuries – hair appointments, manicures / pedicures, retail therapy.
- Travel – I spent a lot of last year travelling, both for work and for pleasure, and the costs definitely racked up here!
As you might imagine, I was spending heavily in the three categories that I’ve highlighted in bold. My eating out costs were intense – and made worse because I can’t claim some back from my employer anymore. My travel costs were also quite significant, in part because I had a number of weddings and other events I had to get to in the last quarter of 2016.
The good news is, that these categories are ones where I can seriously make some savings!
Writing a budget
Once I had a summary of where I’d been spending money for the last couple of months, it was time to look at what I’ll be allowing myself to spend money on during the next couple of months. I didn’t include any of my minimum payments in my budget – in fact, I completely excluded debt payments.
It’s really important to me that I can keep a roof over my head, and feed myself. Previous experience tells me that finance companies will be extremely flexible if needed, so the first priority had to be working out what I can afford to throw at my debt each month.
Life’s little luxuries
You will see that I made a budget that allows me some luxuries. I could give you chapter and verse about why each of them is defensible, but it’s really simple. If I give up all my luxuries at once, I’ll crack and splurge on expensive unnecessary items (new Macbook Pro, anyone) and actually go backwards!
2017 is already going to involve some pretty massive lifestyle changes for me, so I want to be a little bit reasonable with myself. To give you an example:
- My life won’t include eating out a minimum of 10 (and usually 15) meals during the week.
- I will have to be more creative about socialising (see point above).
- My day will now involve commuting, since I’ve moved further away from the city.
- I will also be responsible for a puppy, who apparently requires the same level of care as a newborn (what have I done!).
Given the above, I’m not prepared to give away all of my luxuries. So, yes, I’m keeping my Diet Coke allowance (but putting a cap on it). And yes, I’ve made a budget that allows for manicures and getting my hair done.
And if I were to get desperate, these luxuries do offer great avenues for further savings.
What I’ve excluded
You may have noticed some pretty major exclusions from my budget. For example, there is no allowance for:
- a car;
- eating out, going to the movies etc;
- pedicures (even I accept I can do this for myself);
- clothing, shoes and other retail therapy; or
Obviously some of these are expenses I will have to incur in the next 18 months so it doesn’t make sense to prohibit myself from spending money on them. But I still made a budget that doesn’t include them.
Why? Because I am setting myself the challenge of finding new income sources to pay for these expenses. I’ve previously posted about how one of my strategies to reduce debt is to make more money, but I want to really give myself an incentive to make more money – and if travel will do that, so much the better!
My budget doesn’t deal with my debt repayments. But, I now know that I can pay $3,074 towards my debt each month. This amount has to include minimum payments (which is $2,535). Even so, I will be making additional payments of just over $500 each month to reduce my debt and meet my debt pledge.
$500 really doesn’t seem like a lot, if I’m really honest with you – but every little bit will count. And every 2 months, I should be able to reduce a credit limit by $1,000 – which is a great way of preventing myself from re-incurring more debt in the debt spiral!
$500 seems like even less, when I realise that half of it is income from renting out my carpark. I definitely need to find new ways to make money to try and meet my debt pledge!
So why is it worse than I expected?
My budget is worse than I expected because it highlighted to me (again), just how excessive my lifestyle has been. I was eating out 3 times a day – yes, for breakfast, lunch and dinner. My shopping habits were out of control. I purchased two laptops in 2016. TWO!
So when I made a budget, it was yet another wake up call that my life needs to change. I could have started this journey months ago – but instead, I’ve wasted months incurring debts.
As a successful professional, this is highly embarrassing for me – I have real shame about how badly I’ve behaved with my money. Because despite having significant pay increases for the 5 years I’ve been working as a lawyer, all I have to show for it is a pile of rubbish debt. I don’t have a mortgage on a house that I’m accumulating equity in. I don’t have a share portfolio. I just have debt.
So, you tell me…
Was your budget a wake up call like mine? Do you have suggestions for ways I can make money to supplement my income?