Tips to avoid Bankruptcy
Proper Use and Care of a Budget
Part of my consultation with my clients deals with avoiding ever having to file a bankruptcy again. I try to avoid repeat business by spending some time with my clients talking about financial planning after the bankruptcy. Here are a few points that I try to make. This consultation takes place after discharge if the clients desire it, and it is included in my base fees.
First. Consider working towards a goal of spending 10% of your income towards charity and charitable giving. By focusing on others, it helps us understand what is important in life, and it is not the things in life, but rather your relationships. You will be surprised how easy and rewarding a regular effort at sharing what you have improves your life, and yes even your bottom line. If you do not currently give, consider starting at just 1% of your income, then increasing it on a annual or semi annual basis.
Second, One should always try to put 10% of their take home pay into long term investments. This is your investment for your future. These funds should be put into IRA's or other retirement vehicles on an annual basis, so you can shelter them from taxes. If you ever get into financial trouble, these funds generally should not be used to pay debt, without consulting with a competent bankruptcy attorney.
Third. Use a budget: plan it carefully; input the expenses daily; consult it weekly; adjust it monthly; and live within it.
- Plan it Carefully: You should base your budget first on historical expenditures, look over the last 5 or 6 months of expenditures to get a good idea of what you have historically spent your money on. In some areas where you do not always have a monthly expense such as medical bills, vehicle plates and home or vehicle repairs, you may need to look back several years to determine an average monthly expenditure. Once you have determined your average monthly expenditures, you will want to make adjustments based upon what you can afford to spend, so that your expenditures do not exceed 90% of your take home pay. Be sure to include an allowance for everyone who is included in the budget, this is the pocket money and when it is gone, it is gone. Look at saving for large future expenditures. Even if you do not have a car payment, you should be saving for a future purchase of a car.
- Input Expenses Daily: As you incur expenses input them into your budget planner. This way you can get an instant view of where you are in your budget.
- Consult it weekly: Once a week, you and if you have one your significant other or spouse should review your budget. The following questions should be asked for each category in the budget: How are we doing? How do we make it to the end of the month? Plans to complete the month should be determined and agreed upon. It is critical for financial health and relationship health, that this planning be done with your partner is you have one.
- Adjust it monthly: At then end of the month you and your partner should plan for next months budget. What adjustments need to be made. A budget needs to be somewhat fluid, adjusting to changes in circumstances, but it should also be a firm guideline within the month itself. At the end of the month you should deposit into a carry forward account, funds that were not spent, these funds will then be available in the future when you need the funds for things like medical bills or repairs.
- Live within your budget: A budget is absolutely worthless if you do not live within your budget. It is budget planning that can avoid “unforeseen” expenses, since if you do your proper planning you will be saving for such items. Hopefully, there will come a time, that your income will exceed your necessities. Then you may begin to save for investments and the building of wealth. Millionaires typically don't make millions of dollars, they save millions of dollars.
I have provided for your use the following Annual-family-budget for your use. You might also want to consider some of the money planner software, or apps which are out there. The important thing is not what you use, but that you use a budget