How to get out of debt, part 3

Sorry to all those who were eagerly waiting for the post. We were a little behind with the holidays.

Who’s ready to start their cash flow plan?  The idea is to take everything (almost) to cash. We still pay our bills online, but everything else we pay with cash. We used the envelope system as laid out by Dave. (You know, Dave Ramsey? These are his ideas. We must give credit where credit is due.)

Before you can use cash, you need to have a budget. Every dollar goes some place. The question is where. Where does it go each month? How do you spend your money? Do you live paycheck to paycheck? Every dollar that you want to spend, needs to find a home on paper. It’s time to set up a budget.

Here are a couple sample budgeting forms:
http://www.daveramsey.com/tools/budget-forms/
http://www.daveramsey.com/tools/budget-lite/

We use the gazelle budget from the second link. I like the layout and it is easier for me to read. If you are a fan of Windows Excel, you can find a couple templates there. They are pretty good.

According to Dave, here is how your budget eventually should look: 
Charitable donation: 10-15%
Savings: 5-10% (How’s your emergency fund coming along? Once you have $1000, hold off on this step.)
Housing: 25-35%
Utilities: 5-10% (cable, internet, cell phones fall into this category)
Food: 5-15%
Transportation: 10-15% (gas, insurance, repairs, tags and taxes)
Clothing: 2-7%
Medical/Health: 5-10%
Personal: 5-10%
Recreation: 5-10% (vacations, date night, family night out)
Debts: 5-10%

Once we set the monthly budget, we pull out cash and place it into our envelopes. We do our budget every month. We have envelopes for the little things and the big things. Example? Car repairs envelope. We put money into this every month because I know, eventually, we will need things like oil changes and new tires. Same thing for our car tags, doctor appointments, and Christmas envelopes. Even though we don’t need it right now, eventually we have to go to the dentist. 

Don’t forget, we desperately wanted to pay off our debt. What is amazing is that because we had a budget, we still had the cash to do what we wanted. We lacked nothing and everything seemed possible to us at this point. Trip to the circus? No problem. Clothes for school? In the budget. After we set the budget, any extra pennies went towards our debt payment.

This week, take some time and figure out where your money is going. Write down your bills, rent, gas, food, utilities, eating out, clothes, cell phone, and personal spending. Figure out how much you spend and where it all goes. Don’t live paycheck to paycheck any more.

Next week, we’ll show you our budget.

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