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.

Ideas for Staying out of Debt 3 – Don’t use credit

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

First off, let me say that I am not talking about the people who are able to pay off credit cards in full. I am talking about such topics as car loans and store credit aka Buy Here, Pay Here.

Buy Here Pay Here

Example of Store credit, with Photo by Hugo90

When most people think about debt they associate it with numerous items, Credit Cards included along with various loans like car loans and student loans. I would like to believe in the idea that besides a house one can live life without debt. Yet the only way to have no debt is to never use credit and/or keep a balance. For many people I can understand this being hard. I myself simply didn’t have the cash when it came time to buy books, so I took out a loan, wishing now I never did.

What would it mean to not use credit? For me it would have been to not accept the loan. While to others it could mean delaying the purchase of a car. Yet to others it can mean even more things. But not using credit has an almost negative view in society. It is almost expected of you to go into debt at some point in your life. Yet who benefits from this? Almost any company offering loans/credits generate income from providing this service. Take most loans, your charged interest on the amount you pay, which is extra income to the business.

Had you used the advice in the previous post about savings you could have waited a few months and paid with money you had. Which while in savings it could have made you a little bit of interest, which to be fair is less then 1% for most banks at the moment. I’ve read numerous posts on other personal finance sites about this topic and if possible I say save up and pay with the money you have. if you follow the classic saying of not buying what you can’t afford, then you can’t get into debt.

On a side note, what do you the reader think this site should discuss. Also I hope to get a logo up by the end of the month and we’re on Facebook now.