For those that are living under crushing debt, life is not fun – and it should be. If your phone is ringing all day with collections calls, your credit cards are constantly maxed out, and you consume every penny of your paycheck to pay your bills, you are living a high-stress life and it doesn't have to be this way. Filing Chapter 13 bankruptcy can give you time to get caught up on all your bills. And with a Chapter 7, you can wipe out all your credit card and medical debt as well as most other unsecured debt.
Once you use the bankruptcy to get your debts under control (or eradicated), that's the time to step in and set up a workable budget to keep the positive momentum going. Here are five steps to make sure your post-bankruptcy budget works and is something you can stick to:
#1 Set up the budget together
One thing that can lead to more money problems is not communicating clearly and leaving interested parties out of the process. At a minimum, both you and your partner (essentially all adults in the household) need to be involved. But including the kids is smart too. For a budget plan to succeed, you need buy-in from everyone who is part of the budget. Also, if you're up front with your kids about the realities of your budget, you'll be surprised at how helpful they will be tracking expenses and reminding you to stick to the plan.
#2 Establish a precise plan
For a budget to work, it needs to be as precise as possible where it matters. Your mortgage/rent, car payment, cable, and insurance are a set amount. Your utilities should be easily estimable based on prior months' bills and then, for other expenses, you need to cap them at a max and stick to them. For instance, if you know you need to spend $100 a month on groceries, set $400 as the max. Any that you save can be diverted to savings or a fun family outing. This gives you an incentive to be thrifty. But anywhere in your budget that you can use an exact number, you should.
#3 Budget in some fun
It can be difficult to stick to a very strict budget that doesn't allow for any fun. You need to give yourself and your kids an incentive to stick to the plan. Building in a little treat each week or month then a bigger treat like a family vacation makes sense. You can splurge $4 to rent a movie online or $4 to rent a couple of flicks at Redbox then throw in some popcorn for family movie night. Once a month, an affordable outing can cost less than $50 if you use Groupon or the cheap day at the movies. Then be sure to save a bit each week (plus any budget savings) towards a larger family goal like a beach trip.
#4 Evaluate and reset each month
You won't have perfect success every month with your budget. You may have a utility bill that goes awry, have a school expense that cropped up out of the blue or you just plain blew it. That's okay. The main thing is not to let your budget go even if you have a hiccup. Recover as best you can for that month – you may have to save a little less, dig into your savings or skimp on other expenses, but that's fine. Then, at the end of the month, sit down with your family to assess what went wrong and how you can do better - maybe you need a small emergency fund. Then start fresh next month with positive energy.
#5 Post the plan and stick to it
Your budget is easier to stick to if it's on display as a constant reminder. Post the master budget on your fridge. You can then add a monthly progress list to track your spending. Check off bills you paid, track your grocery spending to see how close you're sticking to your allotted amount and that way everyone can see that you're on track. And if you're not on track, you can all agree where to make adjustments. Kids love stuff on display and you can even attach gold stars for budget items you accomplish perfectly. You may even find your kids are the ones keeping you on budget!
The sure path to making the most of the financial fresh start that bankruptcy offers is to set up a budget immediately. The bankruptcy debtor education courses can help teach you how to make a budget if you don't know how. And consider using a site like Mint.com to help establish your budget. It's completely free and offers tons of educational and tracking tools to help you be smart with your money.
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