Buy Now, Pay Later Household Budget
August 25th, 2006Like many consumers, I never had a plan for spending, budgeting, or future goals. Shopping for myself, my home, the children, gifts, holidays, whatever the event, had no limit. If I didn’t have money in the checking to cover an expense, I whipped out one of my credit cards. Budgets were not in my vocabulary. You might say my budget was the “buy now, pay later budget.” It’s a wonderfully, carefree, budgeting concept that satisfies the instant gratification world we live in. Unfortunately, I learned the hard way, the “buy now, pay later budget” almost always ends in financial disaster. I ended up deep in debt with no savings to speak of. My finances were out of control. It was time to create a new household budget.When you spend money without regard, it’s inevitable that you will use credit to meet your spending habits. You may have a smooth ride for some time on the buy now, pay later budget but, sooner or later, the ride gets bumpy. Eventually, the cards are maxed out, there’s no new credit to be found, and no balance increase options available. Your personal finances become a grave concern when you realize that you’ve hit a dead end. Something has to change. You are forced to take a good look at your finances. If you’re in this position, it’s rarely a pretty picture.
When I arrived at that dead end, I had to make some major changes in my spending habits. Debt elimination had to be my first budgeting goal. I started my first official budget, the “debt elimination budget” and set my first financial goal, to become debt free. My debt obligations set me back at least five years. I won’t have the funds to plan for anything else, until my debt is paid. As a result of a large debt payment each month, I don’t have a dollar to spare in my budget plan. Household budgets are tools for managing money, setting goals, and planning for the future. My current plan for the future is to become debt free.
When I first started budgeting, I was amazed at how much money I was wasting. And, how much I was overspending. After reviewing all my personal and household expenses, and tracking my spending, I saved thousands of dollars per year by cutting back. Making these changes merely brought my expenses within my income so that I could stop using the credit cards. This was a major step in taking control of my personal finances. Once I had accomplished that, I set my budget debt expense to the current required payments. If a payment goes down , I still pay the amount set in my original budget plan. This allows me to pay a little extra each month, since payments generally decrease slightly as principle is paid each month.
I have included a debt management plan in my budget based on what is known as the roll down payment plan. Once an account is paid off, my budget debt expense remains the same amount. Those funds are then redirected to the next debt account that I want to pay off. It is a much quicker way to become debt free as compared to the traditional payment method. And, it keeps your budget debt expense at a consistent amount. Over time you will also be building in an invisible emergency fund.
When finances are tight and debt elimination is a primary goal, it can be difficult to include savings in your household budgeting. Using the roll down method of debt repayment, eventually, you have enough extra funds built into your debt payment budget expense to use in the event of a financial emergency. If you have an unexpected expense one month, you have the option to pay the actual minimum payments on your cards and use the excess to pull you through the month. Not something you want to do often, but only in a real emergency, since your primary goal is to become debt free. If you have substantial debt, household budgeting to become debt free is the first step to becoming financially independent. Your debt elimination budget will eventually turn into a savings budget.