In this money-saving blog post, we would like to emphasize that debt-free management can start with a number of essential steps for keeping you and your family out of financial liabilities. In fact, we are no longer staying at the previous stage of easy-and-free spending culture. As a daily consumer, we are now making difficult choices about exactly how much we can afford to spend. Although this hard situation has mostly been caused by the recent economic downturn and the poor credit market environment, it still makes sense for every family to prevent over-spending and also engage in proper money-saving budget for better debt-free management.
Here are six essential debt-free management steps for keeping you and your family out of financial liabilities:
(i) The initial step for debt-free management is to firstly make a detailed listing of your liabilities and assets. We do expect that you will never be surprised by exactly what you can learn during and after the process of making such list, however, many families can just be shocked by knowing how little net worth (after deducting liabilities from assets) they actually own.
(ii) Next debt-management step is that you have to build a reasonable monthly budget. Your budget shall cover all the essentials, i.e.: include every debt payment. This budget shall also have a certain amount of money prepared for a few rainy days each month. You are not advised to buy non-essential stuffs unless you can save more money than you already budgeted.
(iii) The true idea of debt-free management budget is to fully understand how little should be classified as essentials. If you are a homeowner but have no plan to move, all your housing expenditures should then be classified as essentials. Some homeowners are not going to move simply because they have owed more money than their home shall be worth.
In fact, there are many other stuffs should be categorized as essentials, although some flexibility can be allowed in actual budget. A good example is about calculating how much one shall spend on food stuffs (including meals out and groceries). Many families can easily reduce this budget in half (i.e.: 50%) by cutting meals out at restaurants or pre-packaged food stuffs at grocery shops. One may eventually discover that he can also benefit by eating healthier food on a smaller budget.
Other stuffs that can fall into this category of essentials may include payments one spends on mobile phones, daily travels, utilities including water and electricity bills, and other necessities of life etc. Although one still needs to pay certain amount for each essential cost, he should always be able to find rooms for improvement to reduce wastes. Educate your children that they shall not play online games through cell phones. They shall also begin cutting their internet plans, thus they use mobile phones only for basic communication purpose.
(iv) One shall include payments for debt services inside his list of essential payments, because his ultimate goal is to become debt-free. That said, this is an area one can actually splurge. Always consider to pay at least 10% per month extra money for your home mortgage payment and 100% per month extra (i.e.: double your payment) money for your revolving credit fee. Once you get any tax return, bonus at work, or any cash gift, do consider allocating half of them to cover your debts so as to speed up the whole debt-free process.
(v) The next critical step for debt-free management budget shall be to get a savings cushion for special rainy days. Most people can easily be in trouble on debts once something suddenly goes wrong. Even if one has a basic health insurance, a sudden medical emergency case may still cost him extra money. A necessary but expensive car repair will immediately send him back into trouble with credit card debts unless he does get a savings cushion for special rainy days.
(vi) The last debt-management budget step is, if one does have any money left, he may spend it on some non-essentials. Always remember that once one has made a budget for debt-free management, it is likely that there is no much money for non-essentials at the beginning. There will be no holiday trips for a period of time, and he will surely expect a diminished lifestyle. He will also need to live with fashion styles of the previous years. Even if he can buy new clothes, they can only be purchased in thrift stores or bargain basements. Nevertheless, more money will actually be available for extra stuffs at the end because he will never need to live with high interest-rate debts any more.
These are the six essential debt-free management steps for keeping you and your family out of financial liabilities. If you are making a similar budget for debt-free management, do realize that there must be sacrifices at the beginning and money pay-offs will be seen over the longer run.