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How we built our budget to pay off debt

Hey, there!

I wrote a post detailing exactly how I got into about $30k of debt (you can read that here,) and so now I wanted to go through and share with you what exactly we did to create a plan to get out of the debt.

Before I had a plan, I felt completely trapped.

Not knowing exactly how much money I could afford to put toward my debt was the most stressful part for me. I needed a plan that I knew wouldn’t leave me cashless for bills.

I was afraid that if I threw a ton of money at my debt all at once, I wouldn’t have the cash I needed to pay for other things.

I was also afraid that if I didn’t have a plan, it would never get paid off.

This is where it really goes back to knowing your expenses, whether it is business or personal finances, and being able to allocate certain percentages of your revenue (business) or income (personal) to certain things. Knowing what you can afford to pay by knowing where all your money needs to go is how you build the plan.

I have debt in both sides of my financial life (business, and personal) and so I am going to start with what I did with my business finances to be able to start paying debt on that side (and also because I had to adjust this first as the majority of my debt is business debt.)

I will then explain what I did on the personal side (for those of you who might not own a business.)

This is how I approached my business debt first:

I couldn’t just throw large chunks of money at the debt because I needed some of that cash in the bank to cover other things (aka expenses, taxes, and paying myself!)

This was the most stressful part about getting started on my debt-free journey. I had lots of money in the bank, and could technically pay off the cards right there and then, but I also have expenses, team, taxes and myself to pay, and so I wasn’t sure how much was “save” to put toward debt.

What I had to do on a business end was first look at what I absolutely needed money-wise to pay my expenses and save for taxes. I knew I had to put that amount aside every month.

Then, I was paying myself a certain amount every month–but as I said in the last blog post about my debt, you can’t spend more than 100% (well, you can, but you’ll be in debt!), so I couldn’t increase what I was paying to debt and keep my paycheck the same if that would add up to more than I was bringing in with monthly revenue.

So based on my estimated monthly revenue, I lowered my allocated percentage toward my paycheck amount so that money could go toward debt.

Basically, with how much I was paying myself, there was no room for me to make significant payments to my debt…and since that money has to come from somewhere, I took it from my paycheck…which meant Ronnie and I had to adjust how we were spending on the personal side.

Another avenue that a lot of business owners can take to get some extra $$$ in the budget to pay off debt is to look at expenses and eliminate anything they aren’t using. I did this as well.

***I do want to note that obviously as a business owner, my revenue can change greatly from month to month based on a myriad of factors. How I found my percentages of allocation for expenses, taxes, etc. was by finding my AVERAGE monthly revenue and using that. I would suggest using at least the past 6 months to find your estimate. If you are newer to business, this might not be as accurate as you may be growing rapidly, etc. but I think it’s always best to use an estimate and even estimate LOWER so that you have more wiggle room than if you estimated higher.

Next, we needed to have a plan for our personal finances and the small amount of debt we had there.

Ronnie and I sat down and spent basically a whole afternoon playing with numbers and figuring out what our budgets needed to be in different areas to a) pay our bills, obvi. b) pay off debt as aggressively as possible (we have a bit of personal debt that is part of the $30k total) and c) still have some fun and not feel miserably restrained (my financial coach advised this–she said it’s just like a diet…if you feel restricted, you’ll quit or binge.)

Sooooooo…

The first thing we did was look at the non-negotiable spending we had: bills.

We did go through everything and see if we could lower any payment (internet, phone, insurance, etc.) and we were able to probably save at least $100-$150 by just doing that!

Once we knew what our bills were locked into, we totaled our two incomes combined and subtracted that bill amount (we did NOT include our grocery bill or gas for the car–I’ll get there.)

After we knew what we were “working with,” it was really just playing with numbers to see what felt manageable and good for paying off the debt aggressively.

We knew we needed budgets for :

  • groceries
  • gas
  • fun money/play money/spending money
  • paying off debt
  • savings

So we just started playing with the money we had left over after bills to see what we could do.

We knew that we wanted to obviously put as much toward the debt as possible. What’s really cool about making big payments toward debt in your budget is that once that debt is gone, that money is free to you again and you get to use it as you choose (VERY excited for this!)

With gas and groceries, we knew that we could really be cheap here to save $$$ to put more toward debt (this is a very easy place to save first–food,) and so we have dedicated ourself to a certain grocery budget NO MATTER WHAT (this week we had to get creative but it was fun to see what we could do within this budget!) and it felt so good to stay in that number so that we can stay on track for our debt!

As I said, we did give ourselves a fun money budget that still allowed us to have a good payment to the debt.

What’s cool about the fun money budget is that we each have our own, which means we won’t fight about how we spend it (because the other person doesn’t know, we just have to stay in the budget,) AND we can let extra $$$ roll over to the next month to save for something if we want to! We can even take that extra $$$ from the month and put it toward our debt if we like!

I understand that finding room in your budget to pay off debt may seem almost impossible when you are barely making it to begin with.

This is where you may have to show some constraint on parts of your spending that are able to be adjusted (like groceries and fun spending.)

We are using a pretty tight grocery budget, but it is truly plenty and then we are able to take more money and put it toward debt.

I think a big reason why we got into the financial situation we are in is due to small things like being mindless about how much we were spending on food.

We would have months where we would spend over $1,000 on food, with going out and frequent trips to the grocery store. We didn’t meal plan and we didn’t have a plan in general, so it was really flippant spending.

Now, we meal plan and budget our grocery spending…and we eat just as well, if not BETTER, than we have in the past (because we very rarely eat out–aka so much healthier for you!)

We have also cut down on extra fun spending (like my frequent facials, and massages and all the goodness.) Instead, I pick one of those things to do monthly, instead of all of them–and I won’t lie to you–it helps them feel that much more special and savory!!! There is really something to not having everything you want at once. The wait and hard work makes everything worth it.

So really…that’s it!

I know it sounds like I’m making this simple, but once you have a plan for HOW you are going to spend your money…

It really is simple!

The hardest part is figuring out what your budgets for food, gas, fun money and other misc. expenses will be.

Again, you may have to play with these numbers for a while and it might feel frustrating at times.

But I promise you…if you do the work and decide how you are going to intentionally spend your money NOW…you will feel WORLDS better!

I know we do!

So, tell me…what questions can I answer about starting your own budget?

Write them in the comments!

To your financial freedom!

xoxo

Sarah

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