Budgeting is not easy. Especially if you're not used to it. It is especially very easy to fall into debt when you do not follow your money correctly.
I myself had some problems with credit debts after closing my first business. My mistake number 1? I was not rigorous with my accounting and I did not know exactly where my money was going.
Luckily, the amount of my debts was quite small and I managed to repay everything very quickly. Even though at the time I experienced it, I REALLY hated being in this financial situation. It was a great lesson and I understood the importance of taking care of your finances, even if it's boring!
I promised myself that I would never again be so reckless with my money or that of my businesses. Now I feel much more in control of my life and my money. It feels good !
If you don't know where to start to pay off your debts and make a budget, here are 4 tips to help you start the new fiscal year on the right foot!
1. Know where your money is going
The most important part of taking care of your finances is knowing where your money is going. What do we mean by that? Simply, you have to know where you spend and how often. By doing this, you can become well aware of your financial habits and make decisions. Maybe you spend more on Ubereats than you think!
How to analyze your expenses? There are several ways. If you like to take charge of the situation on your own. There's the good old paper-and-pencil method. Just print your bank statements and highlight everything, transaction by transaction for each month of the last year. Then it's easy to categorize and calculate your monthly expenses.
Otherwise, a faster method is to use an Excel sheet and go through the same process. No matter which method you choose to analyze your expenses, be sure to form clear expense classes that apply to all your months. Here are some examples:
You understand the concept.
If you don't want to go through all your latest financial statements, it's great to download apps that will report your finances for you. Although I do not recommend jumping directly to this step. This is a great way to stay on top of your daily and monthly expenses after you've done the hard work of sorting out expenses.
To note that I don't recommend skipping the step of analyzing your finances in detail, especially if you want to get started quickly. It is essential to understand your financial habits to establish a budget that makes sense and that you will be able to stick to.
These web apps help you budget and understand where you spend your money. Connected with your bank account, they offer you a daily review of your expenses, income, debts and savings. They are very easy to use and very practical! Personally, I use As for my budget and Moka for my little savings.
2. Understand your income/expenses/debts
Once we know where our money is going and understand our financial habits. We need to understand our income, our expenses and our debts. What is your annual salary? Last year, what did you receive as total income? Maybe you have several sources of income, how much can you expect to receive from them?
When it comes to your debts, you have to understand where they come from. Is it credit debts? Government debts? Maybe you financed your new car or your new furniture. By properly understanding our income, expenses and debts. It is easier to establish a budget. How to budget your debt repayment if you don't know what to expect as an inflow of money?
3. Plan a budget
Now that you understand your cash inflows and outflows properly. It's time to make decisions. You've probably realized that your personal expenses are a bit out of control. Or maybe your luxury apartment doesn't "fit" very well into your budget. If your goal is to aggressively pay off your debts, it's time to cut out EVERYTHING not essential to your survival. It may sound drastic, but that is what is needed. It's too easy to hang around in debt for so long because you don't want to compromise on your standard of living.
On the other hand, you may not have to go crazy if you know how to budget and stick to this budget. If you can afford it, budget for monthly and weekly personal expenses. The important thing is to make sure you have enough money to survive and to make your monthly debt payments.
4. Prioritize debts with higher interest rates
If you have several debts under your belt. How do you know which one to repay first? It's normal to be mixed up through it all. Financial institutions are not always clear with the repayment terms of their loans.
First, if you have a very large amount of debt scattered over several institutions. I recommend that you inform yourself about debt consolidation. Basically, the concept is to group all your debts together to make one and therefore have only one place to make your payments. To find out more, contact your financial institution, which will be able to help you.
If you think you can handle multiple refunds in different places (and therefore multiple payments). You need to know which debt weighs the most on your budget. Believe it or not, it's not necessarily the biggest. It is often the one with the highest rate. of interest!
Interest is a percentage calculated on your current debt. It is therefore an amount that will be added to your payments monthly. You can understand that the higher the interest rate, the more surplus money you pay (instead of working on the principal payment of the debt as such). This is why I recommend budgeting in the first place in order to get rid of the debt with the most interest! Your money will be much better spent that way.
See the light at the end of the tunnel
Paying your debts is as simple as that! You don't need to be a tax expert to take charge of your finances. Do not forget that budget can help you to repay your debts, but also to save in order to reach your financial goals! It's a lot of work at first, but when you master it, it's very stimulating!