Budgeting My Way to Being Debt-Free
Budgets come in all sorts of variants and permutations, but the best type of budget is the one that actually works for you.
The strictest budget that I know of is the zero-sum budget. With it, you have to "spend" every cent you make or to be more precise, you give every cent you make a job to do since money that isn't allotted will only be spent mindlessly. My preferred budget though is the anti-budget by Paula Pant of Afford Anything where you save/invest a pre-determined percent of your income per month. It pretty much goes like this: take out money, save/invest accordingly, and spend the remainder of your monthly income as you please. Easy peasy.
Unfortunately, it will take me a while before I can use the anti-budget since I still have consumer and mortgage debts to deal with, necessitating that I micro-manage my money until I can completely wipe out my debt.
I've been using a zero-sum budget for almost a year and I started by tracking my spending to get a bigger picture of how we spend our money. The results were consistent. We tended to overspend on eating out and travel.
My income also tends to be predictable so when the end of the month nears, I assess the upcoming expenses for the following month and move around money as needed to jive with next month's income. Reduction of consumer debt takes precedence over everything else so I only pay the minimum for the two mortgages to make room for credit card debt payment.
My usual spending categories are: debt payment, mortgage (shelter), food (both grocery and eating out), transportation (parking rental, commuting costs, gas, and toll), insurance premium, savings/investments, maid's salary and benefits, and miscellaneous (entertainment, clothes, health, grooming etc)
My miscellaneous category can be a little bit more organized, to be honest, but we don't really regularly spend on entertainment (at most a movie date or two per month), same with clothes since I don't buy clothes often, probably only a new blouse or shoes every 3-4 months or so. Health expenses usually consist of my husband's maintenance meds and son's vitamins, and now prenatal vitamins for myself. Those only amount to 1k to 2k every month so they don't need their own category.
I also haven't been as conscientious with listing down my income and expenses as I used to be, since the results were consistent and I already got the information I needed so I got lazy. Instead of tracking my expenses, I now use the envelope method and set aside money for eating out at the start of the month. When the money runs out before the month ends, then no more eating out for us. It's quite simple really.
The other spending categories pretty are pretty much on auto-pilot since the amounts are quite predictable and our budget only gets disrupted when we travel; when somebody gets hospitalized (knock on wood); or when family members ask for financial help.
In my State of Debt post written almost two months ago, my non-mortgage debt amounted to Php354,621.61. Currently, it's at Php279,669.72, which is Php74,951.89 less than what I started with. Yay!!!
This is where my non-mortgage debts stand now:
RCBC credit card loans
- Loan 1: Php13,684.90 (fully paid by November)
- Loan 2: Php22,351.98 (fully paid by January 2018)
BPI credit card loans
- Loan 1: Php1,999.58 (fully paid by end of May) FULLY PAID!
- Loan 2: Php32,631.27 (fully paid by January 2018)
- Loan 3: Php55,939.38 (fully paid by December)
- Loan 4: Php52,210.08 (fully paid by February 2018)
- Loan 1: Php31,983.40 (fully paid by February 2018)
- Loan 2: Php40,868.71 (fully paid by April 2018)
Personal loan: Php30,000
Once the bonuses start coming in starting late October, the personal loan will be kaput and I can even bump up my savings rate from its current pathetic state of 8%. I joined the Court's savings and loan association so my contribution and salary deduction roughly amount to 8% of my net income. Some months are so financially tight though that I think twice about making a contribution, but I just close my eyes and somehow make things work by tweaking our budget or selling stocks to bridge the gap.
The short-term goal is to wipe off all my non-mortgage debt so that I can start hacking away at the two mortgages while also setting aside an additional 10% in savings every month until my emergency fund is complete.
The ultimate dream, at least for now, is to automatically set aside at least 50% of my monthly income for investment purposes. This presupposes though that all my mortgage and non-mortgage debts are already fully paid and that there's Php300,000.00 parked in my BPI Save Up account (to take advantage of the x5 insurance coverage) . With all that in place, I can watch as many stage plays as I want; go on long-haul trips at least once a year with my family; try out new restaurants and probably even a tasting menu(!) etc. etc. etc. The possibilities are endless when money is no longer an issue.