Monthly Budget Worksheet Example
By looking at their monthly budget worksheet you can easily see that this family is $796 over their budget.
The first thing to note is that this family probably did not realize that they were spending more than they were making. If they had not previously have a written budget, chances are they just came up short when the large bills came and probably used their credit cards to fill in the gaps.
You will likely also notice some things missing from their monthly budget worksheet as well. For instance they have two children but do not have any college savings budgeted in.
Let's help this family get out of debt.
Of course the first step is to get rid of the credit cards. Destroy them.
They now need to eliminate and reduce their spending in several categories. This is easy to do once you have your monthly budget worksheet and have it prioritized.
The spending category could be reduced to $100.
They could sell the car to get rid of the $375 payment. They could then borrow $4,000 and have a $200 payment for 24 months to reduce this bill.
The car maintenance and tires category could be eliminated until they are out of bad debt and have their spending under control.
The Christmas budget could be reduced to $50 and Birthday money could be reduced to $35. They will have to get creative with their Christmas and birthday presents until they are out of debt.
Eliminate the home repair money for now.
Eliminate the clothing money for now. This category as well as some of the others can be added back in after they are out of "bad debt".
Until they are out of bad debt they need to stop their retirement savings. This will start back up as soon as they are out of debt.
They need to sell the ATV to get rid of the $120 payment. Selling unnecessary toys is often an easy way to reduce debt.
Miscellaneous money can be reduced $20 each month, just to cover some of the little things that occur.
While they are still in debt, they cannot afford the internet, cell phones, a vacation, kids activities, summer camp or a newspaper.
These cuts and reductions total $339 per month. This can be added to the $100 per month that they had budgeted for savings to total $439 per month.
Following the plan the next thing that they need to do is save the $439 per month until they get $1,000 in the bank. This cushion will take care of most emergencies and keep them from going back to credit cards to handle these situations.
During this time they need to pay the minimum payments on all of their debts.
This should only take 2 to 3 months to fully fund the $1,000 for paying unexpected expenses.
Pay Off Debts
Now that they have some savings, they need to use the $439 per month to start paying off their bad debt. In addition to the $439, they must use any extra income to pay these debts off that they can scrape up. They would take the two credit cards and the car debt and start paying them off starting with the one that they owe the least on. Go to the eliminate credit card debt page for further explanation.
Now that they are bad debt free they need to save money to cover them if they should lose their income for 3 to 6 months. They should be able to do this in a year or less since they now have no car or credit card payments. Go to the paying unexpected expenses page to learn more.
The Rest Of Life
Our imaginary family is now in a real good financial position. They can now start to fund their retirement again as well as some of the extras that they had in their budget before.
This family could have accelerated their debt elimination even more. They could have reduced some of the other monthly bills with a little common sense or they may have also increased their income in some way. Take a look at the frugal living ideas to learn how they could have done this.
This is an example, your individual monthly budget worksheet may look quite different, but the principles are the same. Just follow the debt free program.