STEP 8: Create A Budget

Action 1: Getting Started

Let's face it - ideally none of us really wants to create a budget. But taking the time to create a monthly household budget or spending plan now will make a world of difference in where you are 5 or 10 years down the road and will also help you get out of debt faster. You must create a budget as an essential part of any plan to control credit card debt.

So how do you start this not so pleasant task? The good news is that if you have been following the Debt Ditch Solution steps, you have already begun!

The first, and sometimes biggest, step is your mind shift. If you have not paid a lot of attention to your spending in the past, making a firm decision to take control of your finances and create a budget. It would be a huge leap forward.

Then, establish some goals. People who set goals have been shown to get further ahead than those who don't. Now is the time to sit with your partner and discuss what financial goals you both have. What is important to achieve in your life that requires money? How will you get there? (Look here for great tips on setting your goals.)

Now it's down to the numbers part of budget planning. How do you decide how much to allocate for each type of expense you have?

One popular tip from financial expert Richard Jenkins is called The 60% Solution. He suggests that you break down your monthly expenses this way...

Create A Budget: Planning Guidelines

• 60% to committed expenses, that is, expenses that you need to pay in order to live. That would include your mortgage or rent, food, car payments and utilities.
• 10% to short term savings for irregular expenses. Unexpected expenses such as car repairs, unplanned home maintenance expenses or emergency pet care fall into this category.
• 10% to long term savings and debt repayment.
• 10% to retirement savings (it's never to early to start).
• 10% to "fun money". Entertainment expenses, vacations, and eating out come out of this pocket. Of course, if you are heavily in debt, this may be an area you need to take from to help repay debt.

Set Your Goals

The next step in the personal budget planning process is knowing how to create a budget.