Setting a budget is not just a business thing—Part 2

Don’t fear debt—manage it!

In this second part of this article, we will delve a little deeper into the topic of debt. Debt is a necessary evil that is part of conducting business and our personal lives.

To reiterate from part 1 in this series, setting a personal household budget is a great way to ensure practical spending within your means and avoid added financial stress in the New Year.

Though difficult to practice, these few pointers can ease the strain of establishing a budget as it relates to the expenses and debt portion:

Establish all expenses

  1. Debt—Credit Cards, Mortgage, Car Loans, Student Loans Etc.
  2. Known—Such as Utilities, Fuel, Food, Fun
  3. Variable—Such as miscellaneous (unknown) expenses that pop up throughout the year. Gifts and donations are good examples of variable expenses
  4. Savings—Savings, Retirement, Investments

Once these items are established and put into a spreadsheet, it is very easy, and sometimes frustrating, to see where there are areas that need attention.

If debt is substantially higher than a manageable portion of income, an effort to reduce this debt should be taken to avoid paying a large sum in interest. Once managed, the other expense items will be much more manageable.

For example, if credit card debt is such that the interest payments inhibit positive momentum toward paying down principle, then consolidation may be an option. Just be aware that fees and penalties may be assessed, however if principle is not reduced, there is a viscous cycle that is very difficult to dig out from.

For Student Loans, be aware that these are obligations committed to upon accepting the loan. Also be aware that typically, student loans cannot be discharged by means of bankruptcy. Most student loans have several repayment options available to meet your needs. The Sallie-Mae website is a great resource for the options available for the loans they service. Be sure to check with your lender for repayment options and programs to fit your budget.

Mortgages can be a bit more daunting. However, much like student loans, there are resources available to assist. Communication is crucial. Michigan State University Extension has a team dedicated to assisting in the area of Financial Literacy and Home Ownership that may be able to assist.

Though setting a budget is not a guarantee to strong fiscal fitness, it is an import first step in ensuring you have an understanding of where you are financially. As Winston Churchill stated during World War II, “He who fails to plan is planning to fail.”

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