planning Archives - Live Debt Free

When you’re managing your debt payments it’s easy to ignore the fact that you have too much debt. The purpose of debt – from a sales standpoint – is to spread the payment out over many years so that what isn’t affordable suddenly is. It’s all about the payment!

With all of the focus on monthly payment, the total amount owed – which is the number that really matters – can sort of disappear. After all, when it comes to debt and expenses, we don’t like big, ugly numbers. Small numbers are so much less disturbing.

Here are five signs that you may be carrying too much debt.

1. You don’t bother to total up how much you owe

Most of us know that we have debt, and usually about how much. When you’re getting in over your head there’s often a reluctance to spend much time dwelling on it. Specific numbers provide frightening confirmation of what we suspect – and prefer to avoid.

One of the best indications that you have too much debt is when you’re reluctant to find out just how much you have. You know that you owe on Credit Cards X, Y and Z, but you try not to pay too much attention to how much you owe on each. And you never bother to add up all the balances either.

Your attention centers instead on the monthly payments for each account, because they look much more reasonable than the combined balances on all accounts.

2. There’s little or no money for savings

Cars and appliances break down or need to be replaced, homes need to be repaired and medical episodes and auto accidents require co-payments. There has to be money sitting somewhere in reserve to pay for those.

If you typically don’t have savings to cover contingencies, there’s a very good chance that the cause is either excess spending or too much debt. The two are closely related, so it’s probably some of both.

Credit card bills and other loan payments are a quiet drain on monthly income. Not only do they leave little room for a regular savings plan, but they can also force you to reduce retirement plan contributions.

A sure sign that you have too much debt is when you come to view your credit lines as your emergency savings.

3. Debt payments – excluding mortgage – are one of your top two expenses

Add up all of your monthly debt payments – student loans, auto loans, credit cards, installment loans – every loan except your mortgage. How does that total monthly payment look compared to other expense categories in your budget? If it’s one of the top two expenses in your budget, you almost certainly have too much debt.

In most households, the monthly house payment will be the largest single expense. In second place might be groceries (if you have a family), health insurance or even combined utility payments (especially if you live in an area with severe weather).

If debt payments are second only to your house payment – or if they’re your number one budget outlay – you’re carrying way too much debt. In that situation, you won’t be able to make any financial progress until your debt is brought under control.

4. You can’t buy extras without using a credit card

Because of the combination of high monthly credit card bills and the lack of savings, there’s never quite enough money to pay for extras. A weekend away, a trip to the dentist, or even a night on the town are covered by a credit card.

Although it may be normal, it’s not acceptable if you want to win with money.

5. You’re shopping for a consolidation loan

For the most part, consolidation loans are about lowering the monthly payment. You’ll still owe the same amount as you did before the consolidation, it’ll just look neater in a single package. And it’s a strong indication that you have too much debt.

It’s not that a lower payment doesn’t have merit. The problem is that the lower payment makes debt easier to live with, rather than making it go away. And the lower payment could also clear the way for more borrowing. After all, if you’re comfortable with the new consolidated payment, it’s often easy to slip back into bad habits.

Note: Matt consolidated his credit cards and auto loans using Lending Club, and he recommends it, but only if you’re going to pay it off as fast as possible and are committed to taking on zero additional debt.

Getting out when you have too much debt

If you’re experiencing one or more of these situation there’s no alternative to taking action against your debt. It’s always better to deal with it while you still have control of the situation – before it reaches the crisis stage.

Here are some tips:

pay close attention to your outstanding balances – that’s your real debt situation, not monthly payments
do whatever it takes to stop using credit immediately
cut back on non-essential spending
sell as many possessions as you can
increase your income with overtime, a part-time job or some type of side gig
get some money in the bank (from steps 3, 4 and 5) so you won’t rely on credit
start the Debt Snowball of paying off your debts from the smallest to the largest.

It’ll take time and a good bit of effort, but soon enough you’ll get to the point where you won’t mind looking at your loan balances any more.

And that’s good news!

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Image : Vectorportal via Flickr

Do you wonder where your money goes… or do you tell it where to go?

Helping you budget your money

Creating a handwritten budget from scratch before attempting to use an existing software or spreadsheet can deliver extra flexibility when forming your first budget. Before using this spreadsheet it may be useful to create a paper budget from the ground up. No spreadsheet… no software. Once you get the hang of your handwritten budget, turn it into a spreadsheet so you can take advantage of the calculations and ease of monthly reproduction.

That’s what I did.

What follows is a brief history of my budget, followed by the budget worksheet in 3 usable formats with sectional instructions for use.

From handwritten to electronic

I did handwritten, and it worked great. Manually forming the structure of my budget was necessary, but once the foundation was solid it was time to move to a system that enabled me to easily and quickly fill in each and every month.

Slowly I began developing a spreadsheet to capture the simplicity and function of our handwritten budget, but with the added bonus of auto-calculations and ease of monthly budget reproduction. It’s far easier to fill in the monthly numbers, save them, and print them out than to rewrite it every 30 days.

Looking to buy software? If you prefer a software solution to the handwritten or spreadsheet approach… I recommend You Need A Budget.

Use the budget planning worksheet

If you just want to grab it and go… here is the spreadsheet. If you want or need explanations of sections, please scroll down to the explanation section of this post.
I have included 3 versions: Google docs version, Microsoft Excel version, and OpenOffice version.

Microsoft Excel version

MS Excel spreadsheet

OpenOffice version

OpenOffice spreadsheet

Budget spreadsheet breakdown

Generic information

A budget is a living document, constantly changing, adapting, and growing to better reflect where and how you spend and save your money. Do not try to make everything perfect… just get it done, then work on tweaking it from month to month. If you think it will be perfect in one month you will likely work yourself into a tizzy and soon stop budgeting altogether. Sound familiar? Patience young budgeting Jedi… I was once in your shoes too. You can master this budget – just be patient and faithfully work it month in and month out. I promise the rewards are worth the time and effort. 🙂

All sections have 3 fields – Projected, Actual, and Difference – they are what they are.

Projected = the amount you input in each category at the beginning of the month. Remember, don’t try to be perfect here – if you are unsure of an amount, make an educated guess and move on to the next category.
Actual = the amount you enter at the end of each month… after the money is spent. This should be exact and based on actual hard numbers. To better keep track of what you spend consider keeping a spending journal – we do – it is an essential way to track discretionary spending.
Difference = the amount your projected amounts differ from the actual amounts. We use the information in these fields to continually tweak how much money goes where.

I have put input some “example numbers” and have only created one sheet labeled “January.” I encourage you to tweak your fields and numbers then duplicate the sheets to include every month of the year. I could have included 12 sheets, one for every month, but then you would just be faced with changing all the fields on each sheet manually anyway… so make your changes to January then duplicate the sheet for each month of the year. To do this, look at the bottom of the spreadsheet screen and find where it says “January.” Now click on that and choose “Duplicate.” Once you have duplicated the sheet now click that new tab and choose “Rename.” You can either create all 12 tabs for the year in advance or just do them as each new month is beginning… I choose to do the latter in an effort to avoid having to change all future sheets if I make a simple field adjustment.

Income

This section is pretty self explanatory – just make sure you include all sources of income including monthly bank interest, dividends, gifts of money, and money you make working any side jobs (a.k.a. “side hustle”.)

Savings

This is where you record all accounts you currently have as savings for the future including, bank accounts, CDs, mutual funds, etc. Your projected and actual amounts in this category are easier to nail down because you have direct control over how much you are saving each month. I advise you to set savings goals, create multiple savings accounts (either on paper for tracking purposes or literally as I do in my Capital One 360 account) and then set up monthly auto transfers of specific amounts to each account. Automation is key when it comes to saving money! Remember… it’s your money – pay yourself first!

Fixed Non-Monthly Savings

This is an awesome section of the spreadsheet and one you are not likely to find anywhere else. To populate the fields in this section, do the following:

Make a list of all your non-monthly expenses that are fixed amounts. For example, auto insurance, auto plates and registration, association dues, professional dues (like union dues), 1/4 of beef, magazine subscriptions, etc.
Calculate the yearly amount each of these expenses costs you, add them together and divide by 12. For example: if the combined yearly total of all your non-monthly expenses is $3,300 – your monthly amount to save will be $225.
Do the calculation for each expense (or group of expenses) and enter that as a field in this section of the spreadsheet, like the sample data I put in the spreadsheet template.

Later in the spreadsheet you will find the Fixed Non-Monthly Expenses section.

Expenses Section – Rather than setting up a simple “expenses” category, I broke expenses down into five different categories to better track and manage them. Auto pay, manual pay, fixed non-monthly, cash envelopes, and other (or left overs.)

Auto Pay Bills

The first section of expenses is auto pay bills. I encourage you to use the power of automation for as many financial transactions as possible – when it comes to personal finances… automation = success. Bills that are friendly to automation are bills that have static amounts and static due dates each month. If the amounts are not changing and the due dates are not changing… then set up automation. Look at it this way – every automated bill is one less bill you have to worry about!

Always set up automation through your bank… not through your debtor. I never give a debtor direct access to my accounts – if at all possible, neither should you.

Manual Pay Bills

Here you will enter monthly expenses with fluctuating payment amounts. You know that you have to pay it every month… you just don’t know exactly what the amount will be. Examples that fit into this category are gas and electric, sewer, water, etc. Don’t worry about getting these projection amounts perfect, just enter in an average. What I did was to go back 12 months for each expense, found the average, then entered that as my projection amount. Some months it is too high, and some months it is too low, but this way I always have the extra money in my account when needed.

Fixed Non-Monthly Expenses

This section is directly related to the Fixed Non-Monthly Savings section detailed above. In these fields simply record each fixed non-monthly expense as it comes due. This is a GREAT way to keep track of – and stay on top of – bills that are due at irregular intervals. Without using this system you risk being hit with “surprise” expenses that can ruin your budget. Using this system provides you with a solid solution to those budget busting problems!

Cash Envelopes

This is one of our new favorite categories! You can take this section and really make it your own. My advice is to use cash envelopes for spending categories that constitute random spending… like groceries, dining out, entertainment (like movies, etc), clothing, and the biggest one… miscellaneous. The power of using cash envelopes cannot be readily explained… it is something you cannot understand until you implement it into your own life. Want my advice? Do it… and do it now. From the very fist day we started using cash for specific purchase categories we saw an immediate change in how we felt about the purchases. There is just something painful about seeing the cash slip out of your wallet and into the hands of another! This concept is especially powerful for your random spending habits – when implemented properly, it will help you reign them in quickly… I promise!

Other Expenses

Last but not least, the infamous “other expenses” category. This is where you will lump together any expenses that do not readily fit into any of the previous categories. Make sure you try to put expenses in one of the above categories first, but if the do not fit, put them here as a last option. Most of the time, but not always, the expenses that end up with here will be non-monthly and non-fixed expenses. A lot of times you will have no way of knowing when the expenses will come due, nor how much they will be. Some examples are, doctor, gifts, house expenses, gas, etc. You will basically take any left over categories, put them here, and project their costs as closely as you can based on past experience.

The Summary

This is what it is… just a big summary of your income, savings, and expenses in one quick view. I’m not sure how useful it is, but I know some people like to see it so I included it.

Make the budget worksheet your own

Remember… your budget is a living document – expect it to change over time. Do not focus on making every calculation perfect… your accuracy will improve over time. For now just focus on using the spreadsheet faithfully each month and don’t be afraid to make it your own. The categories and amounts I put in are just examples… if you customize it to your situation you increase sustainability of future use.

If budgeting is a problematic behavior for you… using this spreadsheet will give you a fresh perspective and hopefully help you finally nail down a solid spending plan for your unique situation.

You can wonder where your money goes, or you can tell it where to go!

Five Signs You Have A Debt Problem