A budget is a very useful tool to help you through your financial goals, whether you are saving, spending wisely, paying off loans and all of the above. Oftentimes, a budget will feature your income or take-home pay and details your expenses so you don’t go over-the-budget.
Creating an effective budget is quite tricky because of our lifestyle and income differences. What could be a need for one family can be a luxury to another. However, the budget should keep you in track of your finances, including your loans pay-off.
Why Include Loans in Your Budget?
You cannot keep ignoring loans and live a luxurious lifestyle without stressing over the former. Loans can weigh heavily on your budget if you keep postponing them and will further accrue interests. If you do not pay off loans responsibly, you risk your credit standing and getting better financing options in the future.
If you are delinquent with your payments, you can have bad credit reflected in your credit report. Since the credit report is one of the benchmarks used by many lenders to provide or reject your loan application, it is best to keep your track record as clean and as healthy as possible.
Furthermore, loans are your responsibility. Whether you had to get a loan for home mortgage, finance your vehicle or for college education (student loans), you are obliged to pay them off. Even short-term cash loans which you got online will need to be included so you don’t feel the burden and be able enjoy your money when you are done paying them.
How to Include Loans in Your Budget
When making a budget, it is important that loans are treated as separate category from other household expenses like food, clothing, gas, transportation and utilities. It is a good idea to keep including loan payments in your monthly or bi-weekly budget so you know you are reducing, and ultimately eradicating them as you go along.
It is best to set automatic payments for loan payments so you are sure they get paid whenever you receive your salary. If you have not automated your payments yet, you can ask your bank and/or look for online applications that will automatically put your payments where they belong.
If you intend to get your money in cash, you can simply allocate your budget for loan payments in one place (such as in the case of envelope budgeting system) so they don’t get mixed with the budget for other expenses. Bring or send the payment right away to your lender so you don’t have to feel burdened or tempted to use the allocated money for something else.
There’s a liberating feeling about paying off loans. Even if you cannot afford to pay them off overnight, being on top of your loan payments give you a much better control over your finances. And finally, when you are out of debt, you will be able to use your money in more meaningful and wonderful ways.