After a consumer has assessed their financial situation, it is important to prepare a plan for handling debt, to guarantee that creditor payments are kept up to date and prioritised to more important creditors. A budget is a written plan indicating money spending intentions and is an efficient financial management planning tool that can be implemented in order to get rid of debt, meet payment dates and avoid future debt problems, regardless of the consumer’s income. A budget helps:
- Ensure limited money is prioritised to important debts and expenses first
- Avoid spending more than available monthly income
- Pay off debts as quickly as possible
- Build up savings account
- Achieve financial goals
Reducing spending and making more money often go hand in hand with creating a budget. Getting out of debt usually requires changing spending habits in order to follow a budget. Spending adjustments may affect all family members and thus, all should be involved in creating a household budget, to suggest expenses and things they can cut down on to improve the family’s financial situation. Involving children in the budget making process will educate them on how to become responsible money managers as adults. In order to further save costs, each item on the budget should be analysed. For example:
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Can you 'down-shop' by moving from shopping at more expensive to less expensive shops. Do you shop every day, weekly or monthly? Shopping less frequently and buying in bulk, at shops like Macro, can reduce costs.
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- Life insurance:
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- School fees
Taking the right steps Living on a budget may be all it takes to reduce debts and hold onto assets, if you only owe creditors a small amount of money. However, living on a budget is only the first step in the get-out-of debt process, if you owe creditors a large amount of money.