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5 Simple Budget Rules To Stay Debt Free

With unemployment rising, employers struggling, and the stock market stumbling, now is not the time to use your credit card to cover the difference. Going into debt now would just make today’s uncertainty worse by increasing your stress levels. And should the unthinkable happen - unemployment - what could be worse than facing a mountain of debt with no income?

But people rarely fall deep into debt all at once. Instead, their expenses gradually begin to exceed their income little by little until the difference, covered by credit or loans, becomes unmanageable. The time to head that off is now - before debt “happens”!

You don’t have to be a miser or suffer a hermit’s life to avoid debt, but you do need to track what your income is and what you bills are each month. But that’s just the start.. Follow these five simple rules for sticking to your budget…

Budgeting Rule #1

Spend Less

Sounds simple enough. Don’t buy something unless you are sure you can afford it.

• Use credit cards only in emergencies. If you think having that pretty dress in the window is an emergency, then you need to reassess the definition of the word emergency!
• Avoid impulse buys at the market or while clothes shopping. Make a list and stick to it. If you find a deal, then scratch something else off the list.
• But that doesn’t mean you can’t live a little. For entertainment, instead of a trip to the video store how about a visit to your local library – most now have videos and DVDs to check out for free.
• By all means, eat at home: The typical family spends only half its food budget on groceries. The rest is spent on restaurants, fast-food, coffee bars, and so on.

Budgeting Rule #2

Pay cash

Use cash even for big purchases. It’s not as convenient as a debit card, but it forces you to decide in advance what you will buy.

• Debit cards can make you spend more than you can afford.
• If you don’t have the cash on hand, you can probably go without it.
• It all but eliminates impulse buying. Cash customers spend 30% less on shopping than those who use credit or debit.
• For safety’s sake, carry a $100 traveler’s check in your wallet instead of plastic. You’re less likely to use that traveler’s check impulsively.

Budgeting Rule #3

Don’t Pay Full Price

Buy on sale whenever possible. Too embarrassed to clip and use coupons? Join the club!

• Most grocery chains offer discounts to customers carrying their “club” discount cards.
• Memberships in buying clubs like Sam’s Club and Costco can have long-term benefits if you plan carefully. This is especially effective for a larger family or for items that are used often, like paper goods. And if you have friends or extended family on a budget, why not pool your shopping and split the larger packaging!
• Be willing to shop more than one store: many stores have special low-low sales on select items or close-out items.

Budgeting Rule #4

Ignore Credit Card Perks

If you’re following Rule #2, then your credit card is only for emergencies. So, regardless of the little perks the card company offers to entice you ignore them! Need reminders of the downside of such offers?

• Look at your credit card company’s policy for things like interest rates and penalties for paying late, like late fees and increased interest rates. You’ll think twice about those extra frequent flier miles.
• Log on to your credit card company’s website and see your up-to-date balance. Seeing it will help you manage your account more closely and help you avoid adding to your debt.
• Use an online search engine. Check out the disaster stories of people who’ve gotten in over their heads with credit card debt. Take it to heart, and decide that theirs is a story you don’t want to live.

Budgeting Rule #5

Pay Off Credit Cards

There’s only one way to eat an elephant: one bite at a time!

• Always pay more than the minimum.
• Pay monthly and on time!
• Transfer large balances to lower interest rate cards.
• Transfer smaller balances to zero interest credit cards and try to pay off the debt before the special interest offer ends.

Easier Said Than Done

Yes, following these simple to understand rules requires some self-discipline, but you have to weigh the benefits: Isn’t it worth it to stay out of debt and have peace of mind?

Follow these simple budgeting rules and you will weather this current economic storm.