09 Mar Getting Back Your Credit After Bankruptcy, Some Tips Part III
In this series of articles, I wanted to provide a framework of how to get back into the driver’s seat after bankruptcy. So far, we have discussed receiving the discharge and what to do immediately thereafter, as well as, setting up the mortgage and car payments on auto-pilot (directly debiting same out of your bank account).
Now we must look at what is leftover in your bank account, and how that amount compares with the monthly bills coming in every month. As you know, bankruptcy will not discharge your ongoing utilities, car insurance, gas, student loans, food, etc. So, you need to develop a plan of action to deal with these monthly expenses.
Please feel free to supplement what I have written with the many articles on this topic on BLN.
The easiest way to plan a budget is what I like to call the 10% factor. I don’t have a real good reason for calling it the 10% factor, other than I like the name and because my assumption is that everything costs 10% more than what is stated on the price. The 10% that you save is your money to put away.
So, in my 10% factor reasoning, you will always have 10% to put away at the end of the month because once this 10% is factored into your analysis, it’s gone and you no longer have it in your disposable income, you should have it wisked away to your savings or money market account.
Let me try to simplify this a little. If you are bringing home $400.00 a week, your 10% factor is $40.00. This way you are taking 10% right off the top of your disposable income. You cannot spend more than that $400.00 minus your 10% factor. So, you cannot spend more than $360.00. That is your 10% factor, and should not be considered into your budget. By pushing the 10% factor on yourself, you are forcing yourself to control your spending, and therefore, taking control of your future.
Next, look at your check-book, bank statements, or whatever you use to track expenses to determine where your money is going. If you have never tracked your expenses, try it. This is one of the toughest assignments that you will ever do, yet one of the most rewarding if you learn from the information that you gather.
If you really don’t have a way of tracking your expenses, I suggest going to the store and purchasing one of those black and white composition books. Each day, write down the money you spent, or withdrew from the ATM, and I mean each and every dime. When I first did this, I was shocked at how many times I reached into my pocket without thinking. When I started writing down my expenditures, I was quite a bit more careful, because I would have to account to myself and my wife for my frivilous ways.
You will have to own up to each and every big mac, nachos bell grande and $5.00 cup of coffee. I am not a fast food kind of guy, but I use this as an example of where money can go quickly. The goal is to reduce spending so that after your 10% factor, you still have some money left over at the end of the month. With this money, I don’t care if it is $25.00, you will begin reducing debt.
I know, I know, I can hear all the groaning through my computer, and you are all saying the same thing, “there is no money left over at the end of the month.” That’s because you haven’t tried yet.
Let’s think about this for a minute and take a little test, if you can save a little on each expenditure, how much would you save per month? Write it down. Hold onto it for several months and then go back to it. I am willing to bet that your monthly savings will be 2 or 3 times the number you wrote down. My number was $50.00. I was able to blow that number away. Here is where I started.
The fixed living expenses. Many living expenses are fixed, but can be changed, like car insurance, homeowners insurance, cell phone bills, cable, etc. Ask yourself one simple question: Does this company have my best interests at heart? No, of course they don’t. They have to account to their shareholders, not you the consumer.
So, if AT&T cell phone service comes up with better and cheaper plan, do you think they are going to call you and offer you the better and cheaper plan when you are already paying more for less service. No, they are not going to call you. But, now I hope you are seeing where I am going with this. You need to get on the phone or internet with these companies and start getting quotes from other companies.
My wife saved over $1,000.00 per year on our car insurance while we were driving to Tampa one day. I don’t recall why we were going to Tampa, but I asked her to call a different company and get a quote. She did, and we were very excited to save the money. This phone call created the snowball, and then we let that snowball start rolling down the hill, building momentum.
Part IV in this series will contain more strategies for building your savings.
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