How to Budget, Crush Debt, and Be Free

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Budget to Get Out of Debt

A budget to get out of debt is different from a regular budget. It is bare bones – reduced to the essential expenses only. If you are getting out of debt, it is important that you cut all unnecessary spending.

Get Down to the Bare Bones

Get your budget. If you do not have one, read my previous post on budgeting to get started. Be honest and think about all the things you usually buy. Check your debit and credit card purchases. Typical expenses include housing, utilities, food, transportation, insurance, investment contributions, charity, savings, entertainment, toiletries, clothing, childcare, pet costs, education, debt, etc.

Next, look at your list and ask yourself several questions:

  • What expenses can I cut?
  • What expenses can I suspended?
  • What lifestyle changes can I make?
  • What costs are too high?
  • What else can I squeeze out of my budget?

Discretionary Expenses

Discretionary expenses are costs that are not essential to your budget and the operation of your home. These are the first costs that should be cut from your budget to get out of debt. Find the discretionary expenses you will cut to get out of debt faster.  Here are a few ideas:

  • Gym memberships
  • Streaming music subscriptions
  • Movie and video subscriptions
  • Any recurring memberships or subscriptions
  • Grooming services (nails, waxing, hair, massage, facials, makeup, etc.)
  • Meal/grocery delivery services
  • Unnecessary transportation costs
  • Unnecessary vehicle costs
  • Unnecessary clothing costs
  • Cable
  • Hobby costs
  • Vacations

Ways to cut

  • If you enjoy your gym membership, try getting a part-time job at a gym with free membership as a benefit.
  • Skip the gym and use Instagram or YouTube for exercises and fitness motivation.
  • Do grooming services at home until you can afford to pay for them.
  • Google recipes online instead of signing up for a grocery delivery plan (e.g. Blue Apron).
  • Call your internet and cable service provider and see if you can save by having only internet. While you are on the phone, ask for a discount for being a loyal customer.
  • Swap your cable subscription for Netflix or Hulu.
  • If you decide to give up cable, plan to get a library card and read more books.
  • If your hobby does not generate money, suspend funding it or find ways to earn extra money doing what you enjoy.
  • Downgrade to free subscriptions for music and video (e.g. Pandora, Spotify, YouTube).
  • Instead of taking a vacation this year, do a “staycation” or day trip to a nearby city.

Variable Expenses

Now, review your essential expenses such as housing, utilities, food, basic transportation, etc. Among the essential expenses, find the variable ones that change from month to month based upon your use. Common variable expenses include food, transportation, clothing, etc.

Choose which variable expenses you can use less. Here are a few ideas:

  • Groceries
  • Take out
  • Clothing
  • Gas
  • Certain Utilities
  • Entertainment

Ways to reduce

  • If you purchase take out, try cooking more meals at home. When you do purchase take out, buy food that can last 2-4 meals.
  • If you purchase brand new clothing, instead buy gently used clothing at your local thrift shop. Sell your unwanted clothing to get a discount on your purchase.
  • Reduce your energy costs by limiting your air conditioning use in summer and turning down the thermostat in the winter.
  • If you go out often, entertain at home – try potlucks, movie nights, or game nights. Avoid the bars by buying your favorite spirits and enjoying it with friends at home.
  • Find free events in your area.
  • Participate in Instagram photo contests to win free event tickets and gift cards.
  • If you have an unlimited data plan, remove it to reduce your cell phone bill.

Fixed Expenses

Review your fixed expenses, which stay the same month to month. These costs cannot be easily reduced. But in some cases, you can make minor changes to the costs. Look at your fixed expenses and choose several costs that can be negotiated or decreased in the future. Here are a few ideas:

  • Car Insurance/Auto Bill:
    • Does another company offer the same insurance package at a cheaper price?
    • Can you combine your car insurance with your home insurance to get a discount?
    • Can you remove unnecessary costs included in your financing costs like gap insurance?
  • Housing
    • Is it time to get a roommate and split housing costs?
    • Can you rent out a room in your home?
    • Is it time to move?
  • Utilities
    • Does another company offer the same package at a cheaper price?
    • Can you remove non-essential items in the package?
    • Can you downgrade to a cheaper cell phone, cable, or internet plan?
    • Can you combine utilities to get a discount?

Suspend Other Financial Goals

Review your costs for all investment contributions and all savings. If you are on Dave Ramsey’s Baby Step 2 – getting out of debt, you should have $1,000 already saved for emergencies. All other savings should be suspended.  All investing (mutual funds, stocks, bonds, 401k, etc.) should be suspended as well.

Add It Up

Lastly, identify all the costs you are going to cut or suspend from your budget and add them up. That amount will be the extra you can put towards your debt while making the minimum payments. As I shared in my story about paying off $80,000, I found about $2,700 extra to pay on my debt every month. If you can’t find that much, it is OK. Squeeze out what you can afford and keep trying to give up even more monthly.

Final Thoughts

A budget to get out of debt should be bare bones and include only the essential expenses. Making these changes requires major lifestyle changes. The harder you sacrifice, the bigger and quicker the wins will be.

By Simone, creator of Slim Fit Wallet

Thanks for reading!