A New Year–A New Financial Goal

04 Jan A New Year–A New Financial Goal

As we start a new year, it is a good time to set some new financial goals. In particular, the goal of reducing debt or eliminating your dependence on debt should be everyone’s goal.

So, how do we get started? First, you need to know what your debts are. As one financial talking head stated, if you want to lose weight, the first thing you do is to get on the scale. You have to know your starting point. So, get your credit card statements, mortgage statements, any signature loans that you are paying and tally up your balances and your minimum payments. This will help you to establish your starting point.

Then, look realistically at your income. If you are paid a salary and your income does not fluctuate much, this isa fairly easy step. However, if your income does fluctuate because you are paid on a commission or your hours change, then this is more of a challenge. For example, for peoplewho work in the construction industry, if the weather prohibits working, then those folks may have their hours reduced. Similarly, overtime hours are never guaranteed so do not count that into your budget. Determine your base line for income on which you can realistically rely.

Then start going through the payments that you must make in order to meet your living expenes. For example, you know that if you want to continue to live indoors, then youmust make your mortgage or rent payments. If you don’t want your car repossessed, you must continue to make yourcar payment. Youalso will need to budget for groceries, car insurance, gasoline, oil changes, electricity, heating and air conditioning.

You mustalso budget fornon-recurring expenses such as property taxes and homeowners’ insurance (unless escrowed); school clothes, Christmas and birthday presents. Youwill need to set aside money for these items. You need to be aware that some expenses fluctuate–sometimes dramatically. In the winter, heating expenses will be much higher than in the fall or spring. Don’t budget $200.00 a month for electricity which may be your average bill for the fall and early spring when in December, January and February or during the dog days of summer your bill is likely to be much higher!

After you compile your list of reasonable and necessary expenses, start listing your debt payments (hopefully, you’ve already counted for most of your secured debts) along with the minimum payments required. You should also list the interest rate for each debt just so you know.

Then, start subtracting expenses from your netor take-home income. Once you start subtracting, you will see where your money is going. Once you get through your regular living expenses including secured debts that are very important (think house and vehicles) and setting aside money for non-recurring expenses, you will then start allocating money to debt payments such as credit cards and other debts. Once you have all this information laid out, you can then set your priorities. For example, perhaps you can try to reduce your energy consumption to reduce the electricity bill. Perhaps you can reduce your food bill by taking your lunch to work instead of eating at out for lunch. Perhaps you can reduce your fuel consumption through a carpool or combining trips. Allocate as much money as you can realistically do so towards reducing your debts.

By being aware of your income and expenses and with a plan to reduce your debt, hopefully you will soon be debt free. Not a bad New Year’s start.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.
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