When I first started I honestly believed that I was fairly good at budgeting and had a pretty good picture of where my money was going (the necessities, duh!!). Well, it didn’t take long to figure out that not keeping a checkbook and not having an outlined budget meant that I was, in fact, not budgeting. If anyone had asked me how much money I’d spent on fast food at lunch over the previous month, I couldn’t have even ventured a guess. It was time to change that.
When I forecasted my paychecks, I discovered that there was some money left over each paycheck, albeit not much. So after forecasting my paychecks out for the next year and facing the reality of my debt balances, my next step was to figure out how I was going to live off the very small amount of cash left over each paycheck. I had to create a budget.
Like my unfamiliarity with keeping a checkbook, I had no idea how to start (and stick to!) a budget. Once again, Google to the rescue. I found a number of articles on what the “right” % of money to put towards debt and various methods for paying down credit card debt, however after a lot of number crunching, I ended up making my own plan. Of my monthly net income, 50% went to debt, 30% went to other monthly bills like rent, 5% to an emergency fund, and the remaining 15% was for living expenses: food and gasoline. Please notice: there was no budget for clothing, entertainment, birthday gifts, charitable donations, or even vacations. There simply wasn’t enough money.
This was The Lean Years.
Since it was important to me to pay down debt so that the minimum payments were not taking up so much of my income, I did some research and came across 2 debt reduction methods that sounded promising. One was the Dave Ramsey program. The other was the Suze Orman method.
Dave said to save up a $1,000 emergency fund first, then start paying off debt using the snowball method, starting with the highest interest rate first. Suze said to start paying down debt with quick wins — smallest balance first — to gain momentum and motivation. At first, I tried Suze’s method. It didn’t work for me, but I’ll explain why in the next post.
Here’s what my budget looked like after deciding to try Dave’s approach: