Americans who want to maintain their standard of living should be careful not to follow the example of Uncle Sam by borrowing beyond their means to repay. But when you get to the point where you are prioritizing the bills, having to make choices about what to pay, you know that you are in real trouble.
It’s been some time since we’ve heard the constant barrage of news stories about the federal debt ceiling, a concept that is also an important line for households to draw. By establishing budget guidelines and a maximum amount of debt that can be responsibly managed (a debt ceiling), consumers can make great strides to becoming more financially secure.
Establishing a Ceiling
Before you can begin to plan a workable budget, you need to establish your personal debt ceiling, which is the maximum amount of debt you will allow. While it’s an arbitrary number, it’s a key to keeping debt under control with enough extra to put some away for a rainy day. Depending on how much you want to invest or save, decide on a maximum percentage of your total household income that you will be willing to use to pay for discretionary and non-discretionary expenditures. Keep in mind that a debt ceiling is not a static figure but changes whenever income raises or lowers.
Planning a Budget
Planning a budget begins with the debt ceiling amount you’ve elected as your limit. Be honest in what are wants and what are needs and examine how and where you’re spending money. Expenses need to be in sync with earnings, essentially striking a balance between incoming and outgoing money. Separate your expenses into columns – necessities, current debts, mortgage payment and luxuries/extras. Don’t forget to include vacations, taxes and insurance premiums in your budget worksheet.
After examining how your household manages its money, you’ll be able to see areas where you may be spending too liberally and want to change. Draw up a detailed budget that you can stick to using what you’ve learned about your spending habits; be as specific as possible. Put into place a budget that you can stick to but not so strict as to make you feel deprived. The goal is to spend less than you earn and to have something left for that rainy day, while making a dent in your debt.
Pushing Past a Reasonable Limit
If you find that your debt has exceeded what is a reasonable debt limit, it’s time to get busy working it off. With a vast number of online debt relief resources available, help is just a click away. Make a few simple changes in how you manage your money and begin to see your debt drop.
About The Author: Noreen Ruth is a popular writer for DebtOMG’s debt advice blog and various other financial websites. Hoping to educate consumers, she uses government and other reputable sources to provide up-to-date, relevant news on credit, debt, and other finance related topics. She stays current on the latest legislative actions that may affect a consumer’s ability understand credit card applications, apply for credit, utilize money management services, etc.
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