Tuesday, November 16, 2010

Ways to simplify your budget: Pay off debt & save

The money that is left over after your fixed & variable expenses should be used to payoff debts or save.  For most people, the best first step is to pay off debts as quickly as possible. To do this, pick one of your debts and put all of the remaining money directly on to that debt.  This is known as a debt snowball and is recommended by financial experts such as Dave Ramsey.  Some experts suggest that you start with the debt with the lowest balance (in order to create some quick success), while others argue to attack the debt with the highest interest rate (in order to save more money in the long-term).  Either option can be successful, just make sure you start paying down debts right away.

This budget system will simplify your financial life.  It sets all of your fixed payments on some form of automatic payment schedule so that you don’t worry about them.  It groups your variable expenses together to give you flexibility in how you spend them.  It can lower the stress that comes from trying to make every budget category equal and trying to keep track of every purchase.  By using cash you will spend less, and by following the debt snowball you will pay off your debt more quickly.

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