Creating a budget is the foundation for a solid financial plan. You can’t make long-term financial decisions until you understand how your income is being spent each month, and how you can reallocate your spending to reach your goals.
Budgeting is also a necessary part of the bankruptcy process. Before you file for bankruptcy, you will have to list all of your income and expenses to determine if a bankruptcy is truly necessary and how much disposable income you have to pay off your creditors.
Assess Your Financial Situation
You can only spend as much as you make, so you’ll need to know your income (after taxes) to get started on your budget. Then, you can plug in fixed monthly expense like rent or mortgage payments, car payments, and other payment that’s the same every month.
Expenses like food or entertainment are a bit more difficult to estimate. You might think you know what you’re spending, but it’s a good idea to create a spending journal or use a budgeting app to track these expenses and get accurate information on your expenses.
Once you’ve tracked your income and expenses, there may not be much or any room left over if you are experiencing financial difficulties. Everyone should be setting aside money for an emergency fund, but how can you if you aren’t even keeping up with your debt payments? The next step will help you figure out what you need to be doing, even if you aren’t doing it yet.
Understand Your Financial Goals
If you want to pay off your debt within five years or retire in 20 years, you have a clear goal that you base on financial decisions on. If you know how big you want your nest egg to be, you can work backwards to figure out how much you need to save each month to reach your goal.
Some people may have difficulty figuring out their goals or prioritizing which goal is most important. A budget consultant can help you with this process.
Create a Budget That Takes You Towards Your Goals
Once you know where you are and where you want to be, you can create a budget that puts you on the right path. However, this process can be quite challenging because you may need to make significant changes to your lifestyle.
You may need to cut expenses in some areas to make your plan work. You may also find that your goals are unrealistic, or that you will need more time or extra income to reach them.
For some people, eliminating some of their debt through bankruptcy will be the only way to create a realistic and sustainable budget. Once you’ve received a discharge, you’ll be able to stick to a sustainable budget that keeps on track to reach your goals.
Bankruptcy is a complex and nuanced area of law. Contact the Law Office of Barbara B. Braziel to talk about your unique financial situation and how a bankruptcy could help you.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.