Budgeting and gathering information about your financial life is an essential step in getting control back from debts in your life. With my bankruptcy clients, this is discussed in the consultation and part of the planning process. Developing a plan for success is imperative to get out of debt. For bankruptcy clients, budgeting will make sure their fresh start does not turn sour because of expenses that are not proportionate to the paychecks coming in.
Get the Real Numbers
When budgeting, you need to know the REAL numbers of where your money is going every month. Most people underestimate their expenses when providing monthly averages from memory.
The best way to get real numbers is to collect your bank statements and invoices from the last six months. Make a list of reoccurring expenses you pay each month and get an average for what each item costs you. Now, think about reoccurring payments that you don’t pay monthly. Examples include dentist and doctor co-pays, prescriptions haircuts, car maintenance and oil changes, gifts, and costs associated with professional licenses or certifications. You can track these items on an Excel spreadsheet, piece of paper, or there are phone apps that help with help you with tracking your spending.
This exercise will give you a good prediction of the money you have left over at the end of the month, also known as discretionary or disposable income, to pay down debt. If this number is negative, then you have an alert that your expenses have extended passed your means. To avoid accumulating debt, you will need to scale back on spending.
Give the Extras the Axe
Expenses in bankruptcy are assessed based on what is “reasonable and necessary.” Meaning that the Porsche Cayenne with the $700 payment and $12,000 annual expenditure for travel will get the boot in a Chapter 13 bankruptcy budget where creditors are receiving pennies on the dollar. You may not be a bankruptcy debtor, but, when looking to pay off debt, this mindset is useful.
Expenses to consider limiting or eliminating to pay down debt:
- Cable Bundles: Converting from a $300.00 a month cable habit to a $100.00 a month internet and subscription-based television combination, also known as cutting the cord, can assist you in reducing your bill while not limiting your entertainment.
- Travel: Scaling down on travel plans while attacking debt is essential to a debt-free future. Don’t worry the Eiffel Tower will still be there when you are debt-free.
- Food: The budget black widow for most people is food consumption. The work break lunches, happy hours, and Saturday night dinners can add up. I once had a client who spent $3,200.00 a month on food. His guess on the high side was $1,200.00. Shopping food sales and meal planning can help put your food numbers on a diet.
- Additionally, eating organic does not have to be a budget buster. Planning ahead can eliminate last-minute takeout, and daily grocery trips will help you to stay on track.
- Adult Children and Family Members: Family members need to understand your responsibilities when asking and relying on regular help. Communicate about how much you can really afford to give. I have seen families slide into foreclosure helping a sibling or parent try to save a failing business, and mothers go into massive credit card debt while adult children “save” money by living rent-free with mom filling the fridge every couple of days.
- Shop your Phone Plan. With so much competition in the market, there are inexpensive unlimited plans that allow you to bring over your phone and your numbers. If you find your provider is charging you over market, then moving your plan might be an excellent way to free up from funds.
If budgeting does not give you hope for a debt free future, then it may be time to discuss your debt issues with an experienced bankruptcy attorney who can help you find a path to your fresh start.
