Ideas for Staying out of Debt 5 – Budgeting the Babylonian way

In Ideas for Staying out of Debt I plan to cover my ideas/plans on how to stay out of debt.

For those of you that have read The Richest Men in Babylon you know which method I’m taking about. This method is mainly for those of you who are in debt, but I’ll show you my modification once out of debt. For those of you that have not read that book the method is devised as followed:
  • 10% you save right away from each paycheck. The point in this is to have extra money that is yours outright.
  • 20% you divide between all your creditors. You would take out a piece of paper and write all your creditors in it and divide the 20% to all of them, pro rated. Just as an example, if you owe $250 to Creditor A and $500 to Creditor B you may make $375 which means 20% is $75. You would pay Creditor A $25 and pay Creditor B $50.
  • 70% is to be used on your living expenses. All your bills are to come out of here. You cannot dip into the 10% or 20%. For some people this will be hard,¬†especially¬†if your making minimum wage. Yet it also means you have room to spare once you’ve trimmed your bills down to this level.

The part that I find interesting that other Personal Finance Blogs talks about is saving at least 10% for retirement. While in this book they said to save 10% to invest safely. To cover this problem, I believe once your debts are paid off you should put the 20% towards retirement, that way you have money in the bank and/or investments, no debt, and your bills are getting paid.

3 thoughts on “Ideas for Staying out of Debt 5 – Budgeting the Babylonian way

  1. First you need to stop spending money that you don’t have. Please do not coiaolndste or use a debt reduction company . It is not free, they will lower your payments by increasing the length of time until you are debt free, and you will take a hit on your credit score. Or they negotiate your debt down after telling you not to pay for awhile adding another hit to your credit score. Student loans are the only debt that can garnish your wages for non payment without taking you to court first. Just list them out on a piece of paper or a spreadsheet and follow the plan. If you work the plan, the plan will work for you.A. Have a garage sale and sell anything that you no longer need or want.B.Get a temporary part time job, if you have one, get another. The wife too. When my kids were small, I worked at night to bring in extra money so that I would still be there for them during the day.Here is a plan that can help you. If you work the plan, the plan will work for you:1. Make a budget. Make the budget a week before you get paid. A budget is not a punishment! It is a tool which will free you from ever having to worry about money again. Put everything in your budget. Especially those annual, biannual, or quarterly bills like car registration, insurance, etc. Give every dollar you are going to bring home the name of where it is going. Add an emergency fund category to your budget for 25 dollars and save up until you have 1000-1250 dollars. Your emergency fund will help keep you from getting into new debt because of an emergency. If you can, set up a direct transfer to a savings account for your emergency fund. That way it moves automatically and you don’t even have to worry about it. You must cut your spending and live on less than you make.2.First get current on all of you debts and make no more late payments. Stop using your credit cards immediately. Do not take on any more debt. Credit cards are like quicksand only the death is much slower. Make a list of all of your debts in order of highest interest rate to lowest interest. Use cash only for your spending from now on.3.Pay the minimum due on all of your debts and then put your extra money towards paying off the highest interest one first. After you get that one paid off, you put the money you were paying on debt #1 (the minimum payment and the extra payment) towards debt #2. That will pay debt #2 off faster. When that is paid off, you put all three payments towards card #3 and that one will be paid off pretty quickly. As an example:To start :Debt #1 (highest interest): minimum payment+ extra paymentDebt #2 (middle interest): minimum paymentDebt #3(lowest interest): minimum paymentDebt #1: paid offDebt #2: minimum payment from Debt #1+ Minimum payment from Debt #2 +extra paymentDebt #3: minimum paymentDebt #1: paid offDebt #2: paid offDebt #3:Minimum payment from card #1+ minimum payment from Debt #2+ minimum payment from Debt #3+ extra payment.That way, you will get them all paid off, on time, and pay the least interest. It will also help towards rebuilding your credit since you will no longer have any late payments. This works no matter how many different debts you may have.4. After you get all of your debts paid off, add to your emergency fund until you have 6-12 months of income saved up. Put that emergency fund money into a liquid money market fund or into a Bank of America no-risk CD so that if you need the money you can take it out without penalty.5a. When you have your emergency fund in place, add a category for fun to your budget. Save for a holiday, a vacation, a big screen, or dinners out, whatever goal you want. Remember to enjoy your life.5b. When you have your emergency fund in place, start saving for your retirement. Join the 401(k) plan at work and contribute the maximum. Your employer probably matches at least part of your contribution so why give up free money? Open a Roth IRA and contribute the maximum on a monthly basis. If you start saving for your retirement now, you will probably retire a millionaire.5c. When you have your emergency fund in place, start saving for your next car. Only buy cars, or other things that depreciate, with cash. Save up for a nicer car. That way you get the interest instead of paying the interest.You can do it and it isn’t as hard as you think. Just follow the plan.

  2. Do both as soon as possible with more emahspis on the emergency fund, then car loan, then student loan. I am guessing that your car is still driveable for at least two years. If so, add up all the deductibles on your insurance short-term disablility, health, car, life, renters etc. That is your emergency fund (should be around $ 1000), once you have that you will immediately feel a little better. Then go great guns to get the car debt paid off, nothing sucks worse than your car breaking down and still owing on it. Now save some $ for the next car (or at least down payment), still have time before the car dies? now knock out the student loans.Also, be sure you are adding $ 50 a month to a mutual fund Roth IRA from day one and start pitching into your 401k at work.

  3. If you have available creidt line for a cash advance, you will get the cash. They don’t care what the cash is for. You may have a fee, usually about 3% which will go on your account and interest will be at the normally higher cash advance rate. There is not grace period. Interest will start accruing right away.You can repay with just minimum payments, although it would be smarter to pay it off quickly. Credit cards are not long term financing. They should only be for short term convenience.

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