How to Stay on a Budget and Become Debt-Free

We live in an increasingly materialistic world, in which every television commercial and billboard is telling us to buy, buy, buy. This sets up a mindset of continual want, in which the only way to be satisfied is to continue acquiring “must-haves” that admen tell us we need. Unfortunately, a false aura of financial invincibility tends to accompany the ownership of credit cards. But we all have to pay the piper at some point.

There are a number of ways to become an adult who is wise about handling his or her money. It all begins with setting goals for your income. Where would you like to be financially in 12 months? Ten years? At retirement? Set goals for all of these time-frames.

There are four essential steps to creating a family budget. Keep track of every penny, yen or pence that each member of the family spends for a month. While it might seem like a daunting task, it will be well worth the trouble. Which expenses do not change from month to month? Which bills do you pay more sporadically, like auto insurance or private school fees? What percentage of your income goes toward impulse buys?

The Japanese are no strangers to budgeting, because their savings practices are much more stringent than those of Americans—an average of 25% of their income. This high a savings rate necessitates household cutbacks, so their magazines are full of budgeting articles.

Write down every income source, including your son’s job at the mall. Be sure that you use net amounts, rather than gross. Then total it all up, and hold your breath. Are you living within your means? In other words, does your income exceed your expenses? If not, proceed to the next step.

Analyze every non-essential expenditure. Wow, a $4.00 latte every morning really adds up. Do you really need to see first-run movies as soon as they come out? It’s time to prioritize, and either cut expenses or add to the family income. Even small cutbacks in spending can make a big difference over the long haul.

Divide your budget into categories. You can buy software to accomplish this task, or simply use an online budget template. This is the heart of your budget, where the family decides how much to allot to discretionary expenses. Would you rather eat out or go to a theme park once a month? Would you rather go camping in Europe or have a Bed and Breakfast vacation closer to home?

Budgets are all about trade-offs and balance. Look at trade-offs that you are willing to make as a family. Can you shop at the bargain market instead of the upscale grocery? Think about free activities that you could pursue, such as hiking. Try to think of these changes as an adventure, rather than a hardship.

Avoid situations in which you might be tempted to overspend. Don’t go to the mall, “just to browse.” Take a stroll on your lunch hour instead. Try to do all of your essential shopping in one trip.

Launch the new budget, and revisit it after one month. How did it work? Did everyone stay within designated spending limits? If not, does a category or two need adjusting? Be sure to plan a small indulgence as a reward for sticking to the budget.

One solid money habit that every family needs is a savings plan. Pull out those goals and take a good look. There should be at least two categories of savings, long-term and emergency fund. Cars break down, pipes burst and kids have accidents. Be sure that you are prepared. Your long-term account will be established for college, retirement and vacations.

Now comes the difficult part—cutting back on spending. In order to make the “outgo” and “income” sides of your budget tally, you’ll need to eliminate the use of credit cards. Carry cash for your essentials, and you’ll have a clear idea of exactly how much is going out. Being a conservative and disciplined spender is your best defense against crippling debt.

Surveys have shown that at least half of Americans spend beyond their means. The college educated more frequently display this behavior than the undereducated.

For a foreigner in Japan, the issuer philosophy surrounding credit cards is very different. Some institutions require proof of long-term employment. It is actually difficult to obtain a card, because Japanese banks rightly fear that outsiders will charge their cards up to the limit and leave the country. If you really need a card in Japan, Costco is probably your easiest route.

How different this is from the U.S. philosophy of offering cards like candy to children!

What do you do if you’re in over your head? Have you fallen victim to the ceaseless propaganda from companies urging you to overspend? Do you incur more debt to pay off existing debt? The average American household carries almost $7K. Kimberly Palmer, NerdWallet credit card expert says: “High interest rates, combined with expenses that continue to outweigh income mean that some households are unable to fully rid themselves of debt and, in fact, continue to take on more.”

How to Get Out of Debt

Here are some tips for getting out of debt:

• First and foremost, cut the cards! Go cold turkey. Keeping credit cards, even in a safety deposit box, is just too tempting.
• Shop around before you choose a debt consolidator. There are plenty of programs out there, so do your homework. You want to get a good grasp on how to work within the credit/debt system.
• Examine your regular monthly bills. This may be an eye-opener. Do you owe more than you thought?
• Separate out your higher interest credit cards, and contact the companies. You may be able to work out a lower rate. Store cards are prime candidates for this strategy. Tell them that you will pay off your card, or transfer your balance if they won’t work with you.
• Start paying more than the minimum owed on your credit cards. You may have to adjust your budget to accomplish this.
• Investigate ways to supplement your income. Call a family meeting, and ask everyone to participate. Kids can mow lawns or babysit. Parents can moonlight with online jobs, or take advantage of Uber’s flexible hours. And be sure to balance work, family time and rest.
• As mentioned above, make cuts in your budget, and you may find that your quality of life doesn’t change all that much.

Take a lesson from the Japanese, who simply do not incur debt. The country’s bank loan rate is zero percent.

Are you aware of how your debt problems can impact your career?

• If you take your money worries to work with you, you are likely to be distracted and perform poorly.
• Distracted employees are more likely to cause worksite mishaps.
• You may be so worried about providing for your family that you pick the wrong time to pressure your boss for a raise or advance. The desperate approach could affect your future advancement on the job.

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By Ashley West