Becoming Debt Free Step 4

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Last week we completed the 3rd step in becoming debt free: determining how much income we have and making sure our tax witholdings are accurate. We’re still holding too much out, so we’ll have a little bit extra money to apply to the mortgages each month! This was also the first step in creating a budget, I just didn’t want to scare my hubby off with the B word :-) Creating a budget doesn’t necessarily mean micromanaging our money.  We just need to know how much we have to spend, where it’s been spent in the past and make a plan for where it will go in the future!

Becoming Debt Free Step 4:
Determine Your Current Spending Habits – All of Your Spending

Amazon Code part 1: YLBX claimed!

This week we’re sitting down with the last 12 months of financial records to see where we’ve been spending.  The reason we’re looking at 12 months instead of just 1-3 is because we want to account for all “once a year expenses” like birthdays, Christmas, trips, property taxes, insurance and repairs.  Looking at the whole picture now will help prevent us from having setbacks later on. 
For each month we’ll list and tally all our expenses into 4 general categories: Shopping, Home repairs, Eating Out/Entertainment and Monthly Bills/Gas/Tithe etc. I’ve found that 99% of our expenses can be attributed to these categories.  If there is something that doesn’t quite fit, it usually will go under shopping because it’s an extra purchase or donation that we’re choosing to make instead of another purchase. I’ve tried before to break down our shopping into smaller categories but run into problems like my favorite store: Target.  In one trip I can purchase food, clothes, cleaning supplies, home decor and gifts.  I don’t want to get 5 different receipts or dissect 1 receipt into 5 categories.  Plus when it comes right down to it I may spend more on food in April, more on clothes in August and more on gifts in November, while cutting back on other purchases to make the budget balance. It’s just simpler to count all “shopping” as one category for now.
This part of the budgeting process can be time consuming, so that’s the only goal for this week.  It can be eye opening but I’m not going to let it get me (or hubby) down- At this point we’re trying to correct the past, not live in it :-)

To sum it all up:
Step 1 – We figured out exactly how much debt we had, the interest rates and how much it was going to cost us to hold onto that debt.
Step 2 – We built an emergency fund of at least 1 month’s expenses.
Step 3 – We looked at how much income we have and made sure our tax withholding is still correct. (Step 1 of budgeting)
Step 4 –  Now we have to determine where our money is going.  (step 2 of budgeting)  We’ll be looking at the last 12 months of records.

Check back this afternoon for a reader submitted debt story and check back next Thursday for our next step in budgeting (this will take a few weeks!)

You can read Natalie’s story from last week as well.

If you’d like to submit your getting out of debt story, you can e-mail it to me. If you have a website, feel free to share it in your bio :-)

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