Some people believe that bankruptcy is the result of a person living above his means and mismanaging his money. While that may be the case for some, most bankruptcies are filed because of a financial crisis such as losing a job, experiencing a medical emergency, losing a spouse or having a failed business. Unfortunately, these things are seldom expected and they often cause financial problems that are difficult to overcome. When that happens, bankruptcy provides a fresh start so that a person can recover from the crisis and begin to rebuild his or her financial well-being.
Even though you cannot prevent a crisis, you can take steps to prepare for a financial emergency. Having a household budget allows you to save for emergencies while managing your money wisely. For the person who mismanaged his or her finances and had to file bankruptcy, a household budget can help that person avoid repeating some of the money mistakes that may have led to the bankruptcy.
Guide for Creating a Household Budget
Step 1: Track Your Expenses. In order to see where you money is going each month and budget your expenses correctly, you need to track your spending. Typically, you want to track your spending for three months to establish your expenses and to determine your spending habits. Knowing where your money is going is the first step. You can use a spreadsheet to track spending (label each column with the types of expenses such as food, clothing, gas, housing, etc.). You can also find several free online tools for tracking expenses at Mint.com and LearnVest.com.
Step 2: Calculate Your Monthly Income. It is just as important to know how much money you have coming in as it is to know how that money is being spent. If you are on a salary, simply add up the amount you bring home, after taxes and other deductions, each month. If your income fluctuates from paycheck to paycheck, you need to track your net income, after taxes and deductions, for 10 weeks. Divide the total income for 10 weeks by 10 to determine your average weekly income. Multiple your average weekly income by 52 (weeks in one year) and divide by 12 (months in one year) to determine your average monthly income. You may need to adjust this figure from time to time if your income begins to fluctuate more than normal.
Step 3: Create Your Monthly Budget. Begin by sorting your expenses into categories such as housing, food, utilities, insurance and other monthly necessities. Use the information you gained from tracking your expenses to sort each amount into a category. You can use a category labeled “miscellaneous” but try to reserve this for expenses that you cannot fit into another category to make it easier to see where your money is going each month. Once you have your expenses listed, subtract the total monthly expenses from your net monthly income. If you have a negative amount for your budget, you must find ways to cut your expenses.
Step 4: Do Not Forget an Emergency Savings Account. As part of your expenses, you must budget money to save each month for emergencies. By having an emergency fund, you will be able to whether a financial crisis without going into debt. If you do not have money left over each month, determine where you can reduce expenses and cut costs to allow for a deposit to your emergency savings account each month.
Step 5: Continue to Monitor Track Expenses. In order to have a successful household budget, you need to continue tracking your monthly expenses to ensure you are not spending more than you earn. Continue to find ways to cut expenses so that you can increase your savings. The more you save the better you will be able to handle an emergency when it happens.
Contact an Experienced Mount Holly Bankruptcy Attorney
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The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
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