Now that you have an accounting software to help you track your spending its time to create a budget.
To create a budget, you will need to create categories based on your spending habits. Here are the categories that I like to use:
Bills: This category includes rent/mortgage, water, electric, internet, insurance, phone and so on.
Necessities/variable items: Clothes, shoes, home essentials, car repairs, and so on.
Entertainment: Fun things that you like to do. This is a very important category and should not be eliminated. If you don’t budget for fun, you will inevitably us a credit card to do or buy these things anyway so you should just budget for them.
Those are just a few of the categories that will help you allocate your money each month.
Once you have a budget you will know how much money you have left to allocate to debt. To help you decide which debt item you should go after first you need to figure out which item has the worst interest rate. This is the item you should go after first. If these seems like to big of a goal go after the item you owe the least on so that you can get that one done and feel that sense of accomplishment.
Once you pay an item off take that monthly payment and add it to a monthly payment of another item. This is called the snowball effect. You continue to do this with each item you pay off.
I have been doing this method for year now. A few years ago, my husband and I were debt free except for our mortgage but then I started my own business and we got ourselves into debt again. Now we are using this same method to get back out.
Another great way to speed up paying down debt is to add any other extra money that you earn to your payment. We do this with my “side” hustle money. This will be a conversation in the next accounting blog. Side hustle businesses are a great way to help pay off debt.
If you need help with an accounting software sign up for a free 30-minute accounting call with me:
Love, Light, and Wellness.