10 Things I have learned about Budgets and Debt

Budgets and debt go hand in hand. Being in debt usually starts with you not having a budget. By the time you start thinking about a budget, your debt is often already well established.

Over the years I have become an expert on being in debt and trying to create budgets!  And in some months the debt is worse than others.

Here’s what I learned about budgets and debt

1. Without debt, you have no credit rating.
2. You learn your money habits in childhood
3. You think you know how much you spend but you really don’t
4. Debt consolidation doesn’t work
5. There are no quick fixes to get out of debt
6. Even lotto winners need to budget
7. Our money manages us instead of us managing our money
8. Cash is King
9. Envelope budgeting works
10. A little goes a long way

Over the next few weeks, I will be covering these 10 topics in more detail. Here is a little taste of what I will be writing about.

• Credit ratings based on how well you pay your debt! Paying your instalments on time and the correct amount, increases your credit rating but at the same time having no debt decreases your credit rating.
  Try buying on credit without existing debt and you will get turned down, especially if you are self-employed and, therefore, don’t have a fixed salary.

• How your parents and grandparents treated money and money problems are passed down to you. If you received money as a gift, were you allowed to spend it? Or did you have to put it all in the bank?

• When a client approaches me for help with budgets, the first thing I ask them is “do you know how much you spend each week?”   I then ask them to write down what they think they spend and then, for the next two to four weeks I ask that they keep every till slip as well as keeping track of any money they give to car guards and beggars. For the most part, the reality of what is spent bears very little resemblance to the truth.

• In general, consolidating your debt doesn’t really work but there are obviously exceptions. Debt consolidation allows you to pay one person instead of many but usually the amount you pay the debt company only covers the interest of what you owe everyone else and does little to pay off the actual debt. They also don’t help you set up working budgets.

• Paying off debt is not always a quick process.  The more you owe the longer it will take to pay it off. You only need R40 a month to start and R40 is what most people spend on a takeout coffee every day! http://kasheringyourlife.co.za/debt-free-with-r40-per-month/

• Google how many lotto winners in South Africa, or even the world, still have their winnings. It is very few. They pay off everything they owe and then start spending and by the time 12 months has gone by they have almost always spent it all.

• Most South Africans live paycheck to paycheck, with little to no money left over at the end of the month. This is your money managing you and not you managing your money.

• While you may not earn rewards when shopping, paying with cash will actually save you money in the long run. Debit cards are a necessary evil, credit cards are just evil!

• It’s as old as time but it works! Envelope budgeting is a great way to manage your housekeeping budget. You only spend what you have!  The downside is it takes discipline to make it work

• Aside from cutting down on the takeout coffee and using that money to pay towards existing debt, putting your small change into a money box can add up every month, Once again this may take some discipline not to dip in during the month.

Whether you are in debt already or trying to avoid it, follow along each week with these posts and join the Facebook community Debt Free. https://www.facebook.com/groups/iamdebtfree/