15 Jan Preparing Your Chapter 13 Budget–Part Three
In Part One and Part Two, we looked at the importance of budgeting in Chapter 13s, and the use of historical data to project future expenses. But what if your historical expenses don’t really help you project future expenses?
Every once in a while, I meet someone who has been through such extreme financial hardship that they literally have no historical expenses to look to. More frequently, I meet someone who has made drastic cuts in expenses of a kind that just cannot be maintained in the long term. I have had clients who have lived with no phone, or no power, or water from a neighbor’s garden hose–hopefully for only a short time. I frequently have clients who take prescribed medications every other day, for example, or who have not been to see a dentist or eye doctor literally for years. So how do you project those expenses?
The best way to project such expenses is with real data–call the doctor or dentist and ask what current charges are for basic preventive care, or call the pharmacy for current prescription costs. Utilities may be more difficult, but most power companies can give you estimates based on historical data, and there are plenty of flat rate plans available for phones, cable, or satellite services.
One of the most challenging situations can be a client who pays for everything in cash. From my point of view, a checking account makes accounting for things much easier, but if you are going to pay for anything other than incidentals in cash, save all your receipts–yes, every single one of them. If you use cash, I know of no other way to figure out where the money is going, which is important both in budgeting for the initial proposed plan, and in order to track expenses if circumstances change.
Paying for everything in cash is not necessarily a bad thing. It can help you stick to a budget, especially if you are in the habit of whipping out a credit card anytime you’re short of funds. Not only can it help to break that habit, and force you to plan ahead, it can actually aid in sticking to a budget, as long as you keep track of where your cash is going. That is the way I learned to budget, many years ago when I was fresh out of school. I carried five envelopes around, one each for gas, groceries, eating out, the drugstore, and clothes. I would put my budgeted amount, in cash, in each envelope. If I ran out of grocery money, for example, I either had to take money from another envelope, or do without. Once the money was gone, I was out of luck until my next payday. If money was left over, I put it in savings. There are commercially available kits that allow you to do the same thing a little more elegantly that my little envelopes, but you don’t really need it. Once you get in the habit of keeping track of what you are spending, you may be able to dispense with the cash in the envelope trick. Now I generally track my spending on the computer. It doesn’t really matter how you do it, as long as you do it consistently.
If you are disciplined enough to take a careful look at all your expenses you may be surprised at some of them. Most of us have something we spend more money on than we like to admit, sometimes even to ourselves. Figuring out where your money is going, however, is a big step towards taking control of the situation. Then you can set up a realistic budget.
Notice I said “realistic.” To me, budgeting is a lot like dieting. To be successful long-term, you have to take a moderate approach. Just as swearing off pizza for the rest of your life is probably unrealistic, so is failing to budget for any fun at all. It’s better to set up a realistic budget and stick to it, than to try to avoid any extra expense, and quickly tire of the deprivation. For example, one of my vices is coffee. I love coffee any time, anywhere, cold or hot, from the diner or the gourmet shop. If I don’t think about it, I can spend a small fortune on coffee. To keep my spending under control, I buy gift cards for my favorite coffee bars. I load my budgeted amount on the card, and it has to last me for the month. Once the card is zeroed out, I have to brew my own. (That works with any store where you routinely spend too much–put your budget in a gift card and take the card, and not your wallet, inside with you. Just be sure the cards don’t expire, and that there are no fees for use.)
Take a look at your budget, and make a plan. Whether or not you decide to file bankruptcy, you’ll be better off if you know what you need to live on, and what you can afford to play around with. And you may find that you enjoy seeing your savings grow even more than you used to enjoy the instant gratification of purchases on credit.
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