The book spoke to my soul. I knew the first thing I had to do was figure out exactly how much debt I had, and how to get out from that hole. So I started researching, and I found Dave Ramsey. His system for getting out of debt, and creating financial stability, is definitely not rocket science, but it works.
STEP ONE: Calculate How Much Debt You Have
Honestly, step one to get out of debt should be read Dave Ramsey’s book The Total Money Makeover. I did his method mostly but with some tweaks based on my lifestyle. I’ll mention how I differ from his plan as we go along.
Anyways, the first thing I did was open up every account I have on my computer (credit cards, car lease, debit card, savings) and calculate all of my assets and my debt. At that time I had 3 credit cards, one car lease, one investment account, one savings account, and one debit account. I had $3000 of credit card debt between those accounts, $3000 left owed on my car lease, and $3500 in my savings. I know this does not sound like a lot of debt. Some people have much much more than that, but for me, it felt daunting. I couldn’t fathom how I had let myself get to that point, but this is the most important part of the budgeting process. Laying it all out, and finally facing the problem head-on, puts things into perspective very quickly.
An example of what my debt breakdown looked like:
Chase Slate Credit Card: $ 500
Nordstrom Credit Card: $1000
American Airlines Credit Card: $1500
Car Lease: $3000
STEP TWO: Calculate Your Monthly Expenses to Create your Budget
Go through last month, write down all of your expenses on a sheet of paper and categorize them by what they are. When I first started I used Food, Entertainment, Toiletries, Dog, Bills, Debt, Rent, and Clothing. (I have a full breakdown of my budget in my email course! See below) Add up how much you spent on each category, and then give yourself a realistic budget of how much to spend for each in the upcoming month. I suggest when starting out to not limit yourself too much.
This is another way I differ from Dave Ramsey. If you’re a spender like me, closing that fence in too quickly can feel suffocating, and not sustainable. I now have a budget that is much smaller than it was when I first started, but I know when I first started this would not have been realistic for me.
I’m going to stop here for today. This first two steps are extremely overwhelming, and I think that’s enough for one day.
Intrigued? You can get the rest of my budgeting series by signing up for my email list! To sign up, CLICK HERE
After subscribing, you will receive daily emails of my step-by-step budgeting breakdown with everything you need to start your budgeting journey! I even include what my budget breakdown is now that I’ve been on the budgeting journey for five months!