If you have been managing your own finances for some time, it is likely that you have had some form of involvement with designing a budget or at least trying to monitor your ongoing spending. If you currently have poor credit and are struggling with your finances, you may be wondering where you went wrong with your previous budgeting methods.
If this is the case and you want to take steps now to turn around your finances, this process will begin with learning how to implement more effective budgeting skills. To help you achieve this goal, here are 3 ways to develop a budget – even with bad credit.
1. Examine your Previous Months Spending
One way to help develop your new and improved budget is to identify where your money is going and to also determine whether or not you have been spending too much money on various items and services. The best way to track these exact figures is to look at exactly where you have spent your money in the previous month or two – or more. You may even track your recent spending patterns over the last 6 months to a year to get an even better picture of the your current financial reality.
If you use credit cards or debit to make these payments, keep an eye on your recent transactions and this history will provide great insight into where you are spending the most money. For example, have you noticed that a large portion of your money goes to bills, rent, grocery shopping, insurance, or your cable and internet bill? After tallying up these totals, next is to look at them and spot the ‘problem’ areas. All in all, here is where you will want to come away with the overall total of your monthly spending, as well as which areas you tend to spend the most on.
2. Address Areas of Overspending
After identifying how much you have been spending that is likely to have shed some light on a pattern of overspending. However, now with the new information you have collected for each area of your spending over the course of the previous month or more, here is where you will come back to those numbers and use them to help move ahead with your budgeting plans.
In addition to how much you have been spending, next you will need to weigh this number with the amount of monthly income you have coming in. For example, if your monthly income is $2,500 and you have spend $2,650 in the previous month – then you should be able to clearly see a problem with this type of spending moving forward. Even though, you only overspent last month by $150, this is still too much and will likely lead to more and more overspending in the future.
If the breakdown of previous month’s spending looks something like this . . .
▪ $1,100 on rent or mortgage
▪ $400 on groceries and eating out
▪ $300 on entertainment, including cable TV
▪ $100 on phone bill
▪ $750 on other expenses including new clothes
Then you can note that some of these areas are definitely those where overspending has played a large factor in your current financial difficulties and a plan must be made in order to revise your budget and reduce your spending overall.
3. Make a Plan & Revise your Budget
The above list will then help you to make a plan to address and reform your overspending ways. So now that you have clearly identified how much, where, when, etc. your money has been going – and particularly which areas you are spending too much on, look at which areas you will target as those to cut back on next time around.
As you can also see from the list above, in terms of the rent/mortgage category, while its true that this expense is a higher amount than the others – it is however likely not an areas where you can cutback, as your rent/mortgage is a fixed amount. Although that being said,perhaps you can reduce your spending in areas such as entertainment, groceries, and other expenses, such as new clothes, and so on.
If you can look at reducing your monthly grocery expenditures by $50 or more and in the ‘other’ expenses category, you can reduce by $100 or more, this could really help you to achieve the spending within your means course of action that you can you been looking for.
As you revise your budget for the upcoming months, your overall budget will say now only be designed to withstand a total spending amount of $2,400 – and here you will have achieved your goal and saved an extra $100 dollars or more each month. You can even take this a step further and set your budget for even a little bit less – that way you will be able to save even more.
All in all, remember you can improve your budget and set new and realistic goals for your finances. In fact, budgeting does not need to be something that scares you, instead it can be straightforward and simplified.
By being organized and breaking this process into smaller steps, you can create an effective budgeting plan that has the potential to enable you to get your finances back on track and even that credit score of yours can have the opportunity to rise up out of that bad credit zone.