Nate and Danielle answer a listener question on how to setup a budget for paying off debt as quickly as possible while having a variable income and being an impulse shopper.
Show Notes
Listener Question:
I have tried to do a budget with my husband several times now, and we just can never get on the same page. I added up all of our debt and it comes out to be $43,986.66. I want to get that paid off in 2 years, but i basically have no idea where to start..i get so overwhelmed with the numbers that i get stressed and upset. I do not want this to go out to 5 years to payoff.
Follow-up Email:
What I have been trying to figure out is if it is better for me to budget weekly or biweekly. I have a huge problem with actually sticking to the budget once I make it! I am a bad impulse shopper. I have done a few things to start getting us on track. I have put what bills I can on budget billing and auto draft so I don’t have to worry about those and can automatically add them into our expense for the month. How we have bills set up now is in 2 separate accounts. My check goes into one acct to pay for the house, my car, and my son’s before school care. The other acct has my husbands check and all other bills come out of that one. He gets paid weekly and can vary from $800-$1000. So its difficult for me to try and get a number to budget with and stick to it. We are working on our savings and between us we have $400 a month going towards that acct automatically from our checks.
First off, good work on getting things rolling on your budget. Sticking to a budget is difficult and takes time. We still mess up our budgeting goals on a regular basis.
From the information that we have, you have a variable income of about $800 a month ($200 a week x 4 weeks). What we would first do is base our entire budget around the lower amount. Any extra would go straight into paying off our debt. The thinking behind this is that if you can live on your and your husband’s income on the lower amount, get used to that. The extra will knock down the debt quickly.
As of right now, you are putting $400 a month away into savings. If that amount is just going into savings and you already have an emergency fund, stop putting it into savings and throw it on the debt. If you don’t have an emergency fund, build a small one and then throw everything you can at the debt.
If the $400 is what you are putting towards debt it’s going to take you 110 months to pay the debt off or a little over 9 years!
If that’s the case, we need a new plan. Let’s build one.
The Plan
- Current debt, ~$44K
- Goal: Pay it off in two years
- That means you need to be putting a little over ~$1800 a month towards the debt
We don’t know what your total income in or other expenses like mortgage, utilities, etc so we can’t break things down super far but we can look at the behavior.
I (Nate) am also a bad impulse shopper. I bought something random on Amazon today in fact. Impulse shopping doesn’t have to be a bad thing though. It’s knowing when to stop the impulse.
Let’s say that you give yourself $100 a month to spend on whatever. When that money is out, you don’t get to spend anymore. Tips for impulse shopping:
- Use only cash, when the cash runs out, you can’t spend anymore
- Use a pre-paid credit card with a set limit
- Use a debit card linked to an account with very limited funds
All of these are designed to keep you from yourself. They force you to not be able to spend money when the impulse happens. With time and work, the impulse will lessen and it’s easier to live within your bounds.