Making a budget is the most important step you can take to get out of credit card debt faster, yet the high percentage of people with high debt shows how few seem to realize that.
What exactly is budgeting? At its simplest, it’s a ledger detailing the spending decisions you intend to make. It estimates how much money will come in during the months ahead and it allocates enough money to cover expenditures such as food, housing, transportation and insurance. A good budget also includes allocations for regular savings.
Yet few take the time to draft a budget. A Gallup poll showed only 32 percent of Americans have a budget each month. Even fewer, 30 percent, have a long-term financial plan. Instead, they rely on guesswork or a wish list of things they’d like to buy.
If that’s how you manage money, things won’t go well. Before long, your expenses easily outstrip your earnings leading to a financial meltdown.
First let’s dump the misconceptions about budgeting. It isn’t about self-denial, though a solid plan usually contains an element of that. Rather, it’s about outlining your near-term financial future. Remember writing term papers in school and the teacher telling you to make an outline before you began writing?