We are well into a New Year, and resolutions to get control of finances are often at the top of most resolution lists and in full motion. This is especially true if you are in financial trouble and contemplating bankruptcy.
Whether or not bankruptcy is in your future, you still need to deal with your financial situation now and in the future.
A budget is a good place to start. Basically a budget is a listing of all your expenses and all your income over a set period of time. Putting these items down on paper can be a real eye-opening experience, showing you exactly where there are opportunities to reduce expenses and save money. Having a savings cushion can be vital when emergency expenses arise, such as home or car repairs, or when you need to purchase big ticket items. Having savings will help you manage your finances in these situations without going into debt.
You don’t have to be a math whiz to build a budget, and the time you spend organizing your finances and tracking your spending will pay off in terms of having control of your finances. If you think about how much time you spend each day doing activities that have no positive benefit, you will be able to easily justify the time spent moving toward the goal of not spending more than you make, and putting aside money so you build savings. Not putting a financial plan in place can lead to overwhelming debt faster than you think.
Steps to Avoid Overwhelming Debt
The first step in developing a budget is to figure out how you will track your budget. This can be done with nothing more than a pencil and paper. You can establish a budget using a spreadsheet application or you can use an app on your computer or phone that is specifically for budgeting. For those that are technologically inclined, you are in luck, there are a number of highly rated apps and websites available for use.
The second step is to collect documents that give insight into your finances. These documents include paperwork that shows where you are spending your money such as utility bills, credit card bills, and miscellaneous receipts. Having more than one month of these bills is helpful because some bills, like your gas and electric bills, fluctuate depending on the time of the year.
Determining Your Expenses
To get a good idea of what you spend you should take the bills for a 12-month period and add them up and then divide the total by 12. That would give you a per month average. Don’t forget to add in your food bills as well as gas for your car, medial bills, and personal care items. Some of the tallies may shock you, perhaps putting things into perspective.
Your food bills are another area where it is important to average your costs. You will probably be shocked at how much you are spending on food, whether at the grocery store or restaurants.
Determining Your Income
Once you have a good handle on what you are paying for each month, you will need to determine your monthly income. This can be done from paystubs or your annual W-2 statement or 1099s. Be sure to include the federal, state and local taxes you pay as expenses. You also need to include as expenses what your pay for FICA, Medicare, insurance and other benefits and your company retirement savings.
If your income is less than your expenses, it is time to analyze where you are able to trim your expenses. If it is out of your control and you are falling into deeper debt each month, personal bankruptcy may be an option for you.
Tips for Cutting Expenses
There are many online resources with tips on how to trim your budget and save money. Each year the AARP comes out with a list of 99 ways to save money. Some recommend that you pay cash when possible as it helps connect you closer to your money. Another recommendation is that you substitute as a way to keep yourself from feeling deprived. If you have a gym membership, cancel it and save that money to buy home gym equipment or if you buy coffee each day, stop and take that money to buy a good quality coffee maker for your home.
The bottom line is that the more you understand how much money you are spending each month compared to how much money you have coming in, the better you can make decisions that will keep you from spending more than you make. The important aspect of budgeting is that you establish a budget and that you track your expenses and update that budget regularly in order to get the best results.
When Bankruptcy is an Option
If you have exhausted your budget efforts and find that your debt is out of your control, talk to an experienced bankruptcy attorney about your options. A bankruptcy lawyer will take a realistic look at your financial situation and advise you accordingly.
Thinking about bankruptcy? Hines Law Offices is full-service bankruptcy firm that handles all types of debt relief matters to the residents of Massachusetts. Our bankruptcy attorneys specialize in Chapter 7 and Chapter 13 cases guiding you through the process and help implement a financial rebuilding plan. Don’t let your budget planning get out of control and bring on tremendous financial stress. Call our Bankruptcy Law Firm today for a Free Consultation!