Majority of the time, consumers fall into debt due to the root cause being poor budget management. If a consumer’s budget is not managed in a logical and practical manner, overspending and debt problems can arise. If your budget is sound, this will cause your debt management to be smooth and sound.
Many experts when queried about debt management advice agree that it begins with a sound budget. Knowing your expenses in and out and planning them down the last cent, is a sure way of knowing exactly where you stand with your debts. The first step to a sound budget is to work out exactly what amount of money of you have to funnel into debts. This means working out precisely what you have left once deductions such as rent, medical aid and taxes have gone off your salary. A good mantra to remember is “I earn less than I think”. Although it may not seem like a positive mantra, it will help you stay in control of your finances.
Once you have that amount worked out, sit down and calculate your necessary living expenses such as food, electricity, transport, clothes, school fees and any other expense that does not form part of your debt portfolio. If this amount exceeds 60% of your income, do not consider debt – save instead.
Your debts should never exceed 40% of your disposable income – as this will begin to chip away at your living expenses. Once debt has reached the 40% mark, it is time to consider debt management advice from an expert such as a debt counsellor.
A budget may seem like a lot of work, but a little knowledge of excel can clear that up. Start a worksheet, or search online for a budget worksheet template. Using that worksheet, calculate all your expenses and keep track of your debt payments monthly. It will also serve as an indicator of how much of your debts have been paid off, as well as reminding you of all your payments. It is entirely human to forget the odd payment if you have a myriad of creditors hammering at your door.
Remember that debt management is easy if you budget, keep track, and don’t exceed your financial limits.