Creating A Budget and Staying Out of Debt

How to Live Within Your Means to Stay Debt Free

Debt reduction is a long drawn and effort intensive process. With several thousand Americans struggling with massive debt, the realization that it is best not to fall into the debt trap, has perhaps come a bit late. Often, huge debts are incurred because you do not have enough savings to meet unexpected expenses such as medical emergencies.

At other times, overspending using credit cards or on loans is the cause of excessive debt. When you control and structure your spending so that every dollar is spent on worthwhile expenses, it is easier to avoid incurring such debts. Here are some ideas that you can use to live life within your means and still enjoy it.

Keep track of your spending

One of the biggest mistakes that debt ridden people made is that they never realize their spending far exceeded what they were earning by way of salary, income from investments etc. Make a simple income expense sheet to tell you exactly how much money is coming in each month and how much you are spending.

This monthly statement helps you take stock of your finances and spending habits. If your spending is way beyond your income then chances are you are already well on your way to accumulating unmanageable debts.

Make a budget and stick to it

If your monthly expenses are exceeding or equaling your income then its time for you to start budgeting. Draw up a monthly budget showing the maximum amount you can spend after you have set aside a reasonable amount as savings. Now list out all the unavoidable expenses such as groceries, vegetables, schools fees, etc.

You can make another list of expenses that can be trimmed such as electricity bill, telephone charges, transportation and others. A third list gives you the expenses that can be avoided altogether or reduced substantially, for example, clothes, eating out and entertainment.

Look for ways in which expenses in the second list can be reduced, for example, using the subway more often or walking/cycling to the supermarket. Avoid spending money on expenses in the third list unless you have enough money left over in your budget at month end.

To stay debt free it is essential for you to stay committed to your budget. Remember that staying out of debt is a far easier task than working your way out of debts. By living within your means and controlling spending you not just avoid debts but also ensure that you have enough savings for a financially secure future.

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