Even though you may not think it, this is the most important stage to becoming debt free and sorting out your finances it is. This is the time when you need to look at how much money you are making from your work, your business and any assets you may have attained that create an income stream so you can then look at what your total income is.
Then we need to look at all the outstanding debts that we have this should include student loans, credit card balances, loans, overdrafts, mortgages and hire purchase agreements and any other debt that you may have. For all these debts we need to look at all the minimum payments to make sure that we can at least pay these.
It is now time to make a budget so that you can make sure you can pay for all your necessary expenses. These will include housing, food, utilities and transportation. At this stage however you must remember that if you do have debt you will need to make significant life choices to reduce your expenditure to the minimum so that you have some spare cash at the end of each month. Some of these life style choices may involve get rid of some assets so that you do not get further into debt or may mean paying for a lower level of service. For example if you currently rent a house and you pay £600 per month you may need to look at moving in to another property that may only charge £500 per month or if you are single you could look at moving in to a house share or if you own a property with a spare room you could look at renting out the spare room to increase your income. You will also need to cut down on social activities, holidays, car payments and mobile phone payments until you sort out your debt and are back to a balanced way of life.
You need to look at your money to make sure that at the end of each month you have money left over from your income after taking off all your expenses and minimum payments for your debts. If you do not have any money left over at the end of the month you need to go back through your budget and reduce your expenditure even more or you could look at trying to increase your income by taking on an additional job or getting income in some other way. You may need to repeat this process several times until you get to a good amount of money left over at the end of the month.
Doing the above will mean you have to make sacrifices however these will be worth the while so that you can become debt free and can then have all your income to spend in however you see fit.
This is only the start of the journey to becoming debt free but it is an important so that you know where you are going.
If you do have trouble trying to get any spare money from your budget you may be at a point where it might be worth while trying to talk to your local citizens advice centre to see if they can help you to decide on the best way to manage your budget or to look at help with your existing debts. They will be able to help you look at the options available for you.
This stage will set you up for the next stages of improving your finances.
Let me know where you are with your money situation in the comments .
The Normal Person