My Passive Income Journal

Best Budget to Get Out of Debt

From Bad Debt to Financially Free

Get out of debt! BUT ….. how do we get from a position of bad consumer debt, through to being financially independent?

In other words, how on earth do I bust free of debt?

We bust fee of debt by …. stepping through a logical series of budgets. Step by step by step. This is how we bust free of debt.

I’m going to show you the BEST budget to get out of debt.

Tackling bad consumer debt starts with accepting the situation with no judgement and focussing on the future. Thinking about the future helps rewire our stressed-out brains and creating a clear picture of future you.

The future means this:

  • Having a decent amount of cash for emergencies
  • No bad consumer debt
  • A portfolio of assets that pay us passive income regularly.

(Just stop reading now. Imagine these three things already achieved for yourself, now)

This can be 100% achieved by following my simple set of budgets step by step.

There are four budgets – you start with number 1 and progress steadily through each budget.

Each of the four budgets tackle the most important part of your financial journey in logical order.

So, let’s explain each budget in order and the transition point from one budget to the next.

(This will set you free if you follow it – seriously, no joke.)

The 4 Budgets

Each budget assumes that every dollar that comes your way (salary, gifts, windfalls, bonuses etc), will be allocated as per the percentages listed below.

Budget 1 – Creating an emergency fund

  • 30% to a separate emergency bank account
  • 60% to cover all living expenses.
  • 10% to spend on whatever delights you.

How much should you have in an emergency fund?  Enough to cover 3 months of unemployment at a minimum.

Once a suitable amount of money is sitting in the emergency fund bank account, move on to Budget 2.

Budget 2 – Conquering consumer debt – AKA Bust Free Of Debt!

  • 20% to extra debt repayments (tackle debt with the highest interest rate first)
  • 60% to cover all living expenses.
  • 10% to keep adding more to your emergency bank account.
  • 10% to spend on whatever delights you.

As each consumer debt is paid off, then roll that entire payment plus the original 20% and apply it ALL to the next debt.

This is commonly known as the debt avalanche method. It’s VERY powerful.

Once consumer debt is cleared, move on to Budget 3.

Budget 3 – Buy income-producing assets

  • 20% invest in wise income-producing assets (income investing)
  • 60% to cover all living expenses.
  • 10% saving towards large purchases.
  • 10% to spend on whatever delights you.

This budget continues till the income from our investments create a reliable passive income.

Once this is achieved, move on to Budget 4.

Budget 4 – Living a full life

  • 10% continue income investing to increase your passive income.
  • 60% to cover all living expenses.
  • 10% spend/donate to society and community (meaningful stuff)
  • 10% saving towards large purchases.
  • 10% to spend on whatever delights you

Budget 4 is how old-money families live.

This final budget will ensure your income continues to grow every single year for ever. This is important so as to combat inflation.

Additionally, this final budget continues to let you live very well and also allows you to consistently contribute to important community and social needs and causes.

Contributing to important community and social needs gives extra meaning to life and a genuine sense of self-actualization. It also provides us all with a higher order purpose outside of ourselves.

Best budget to get out of debt
Best budget to get out of debt

Making The 4 Budgets Work

The 4 budgets are very simple to understand, but not always easy to smoothly implement in real life.

Here are some observations to assist in shifting the paradigm.

Don’t be tempted to get rid of the “10% to spend on whatever delights us” part of the budgets. This is vital to remain happy and to stop any feeling of lack or drudgery.

It seems counter intuitive, but from real life experience, it is vital for success.

The most challenging part of each budget, believe it or not, will be keeping all living expenses to 60% of income. Yes, this may initially mean getting a side gig (temporarily) to help the process. It will also mean that spending inside this part of the budget will need to be very mindful. Sometimes extremely mindful in the initial stages.

Finally, do not dismiss this exercise as impossible.

Many, many people achieve an amazing outcome, even on small incomes. This is where we must allow our minds to be inventive and seek solutions (actually, this is what our minds do best).

Incidentally, living on 60% of our incomes is fully supported by the simple living community world-wide, who actively and practically share all their tips, tricks, support and encouragement with astounding generosity.

Remember, the frugality part of the exercise will not last for ever – it’s a temporary means to an end.

So, there you have it – the best budget to get out of debt.


Hugh Walker