Creating a Personal Budget to Reduce Debt

If you have managed to rack up some personal debt, you are likely looking for some ideas to help you get out of it. While there are many steps and strategies available to Canadians looking to get out of debt, starting a personal budget is the most effective. Working to get out of debt is only the first step; you must also begin to build for your financial future.

Track your Spending

If you don't know what is coming in and out every month, you will not be able to focus efficiently on getting your self out of debt. Track either on paper or by using a software program to examine your personal monthly spending habits. Focus on the items that are fixed to begin. Fixed expenses are those expenditures that are the same each and every month. The next part of the process is to review the discretionary expenses; those that you can control and those that change every month. Consider what amount that you have available each week to spend on these amounts. You may want to consider using cash for these items so that when it is gone, you won't be tempted to spend more. Or, you can simply track the expenditures each week to ensure that you don't go over. To make it more fun and less like a budget, spend this discretionary money on whatever you like per week. This way, you can enjoy what you are spending without going over your personal budgeted amount.

Cut Back

You may not want to, but cutting back is an important part of the process when you are looking to build capital and pay down debt. Look at any and all areas that you can cut expenses back. The easiest to cut back are things like entertainment, groceries and clothing. Manage your expenses each and every week and be creative when you are looking to reduce expenses.

Pay Yourself

When you are looking to get out of debt, you also need to begin saving in order to stay out of debt over the long term. Start an automatic savings plan and deposit a minimal amount every month or every paycheck. By the time that you have been able to pay down and off your debt, you will also have built some personal savings to rely on in the future. This process is called establishing a "cash reserve" and it is recommended that you have 3 to 6 months of your regular expenses put aside in a cash account for financial emergencies or opportunities. Start small and over time you will have established yourself a cash reserves and you will have paid down and paid off.
Monty Loree is the founder of http://www.canadian-money-advisor.ca which helps Canadians better understand their money, credit and the financial industry in Canada. In our financial podcasts, we are interviewing industry experts who give our visitors the truth about the financial industry. Canadian Money Advisor is an important source for Canadians to learn more about their money.
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