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Getting Your Budget Back On Track

January 28, 2010

We often hear from families that are in financial crisis and this column was written especially for them. (And anyone else who is struggling to get back on track!) Some have signed up with a credit-counseling agency and a few have already filed bankruptcy. However, even with additional assistance many still can’t seem to catch up and although their exact circumstances may be different, the general feelings are very much the same. Frustration, despair, and fear. Fear of possibly never being able to get back on track and live a better life.

However bad things may seem, I still believe everyone can get back on track. It may take several years of perseverance, dedication, humility, and hard work, but it can happen. Just as it is with many other difficulties we are presented with in life, there is no quick fix. We have to stick with with it and persevere.

“When we long for life without difficulties, remind us that oaks grow strong in contrary winds and diamonds are made under pressure.” – Peter Marshall

If you’re trying to find a way to get back on track financially, here are 5major points that I feel you should consider:

1. Take Responsibility for Where You are, Right Now

· Whatever circumstances may have thrown you off-track, if your feet had been on really solid ground things would likely have turned out better. (For example: depending on your age at the start of your financial difficulties, if you were able to have had a nice savings built up by that time… you might have been able to handle whatever came your way.)

· I know that this step is not easy, and it may even take you a long time to come to this point, but however long it takes, you just need to get there.

· Accept it. Then move on with your life to make it better!

2. Do Whatever it Takes to Keep Your Head Above Water–as Long as it’s Legal!

· If you need extra money to pay your “already cut back as far as they can go” bills, then find a way to make more money, legally, and immediately. This is not the time to be looking for the ideal part-time job, just get one.

· If you have already filed bankruptcy, or are already signed up for a repayment plan, it is even more critical that you stay afloat.

3. Make a Plan and Get Out of Debt

· Make a list of all your debts, including minimum monthly payments, interest rates, and current balances.

· If you have more than one or two debts you’ve got several choices when deciding which one to pay off first. After listing your debts and the monthly amount due on each one, choose one of the following to pay off faster (with any extra money you can afford to send):

o The bill with the smallest balance. (This is usually my recommendation as it yields more surplus money quickly, which can then be put towards the remaining debts–or the one with the next smallest balance.)

o The bill with the largest minimum payment. (Similar results as above.)

o The oldest bill. (This can be necessary if a debt has gone into collections, or is past due–medical bills are also a good example, even though they may have 0% interest. They will send bills to collections if gone unpaid too long.)

o The bill that’s the most behind. (If you have several bills that are overdue, you’ll have to prioritize them according to your particular situation. You may have to juggle the debts each month until you get completely caught up, rotating the payments so that none of them get too far behind. Speak to each creditor personally and see what can be worked out, some may be more willing to work with you than others.

o The bill with the highest interest rate. (Or the highest fees you’re incurring because you’re behind.)

o The bill (company) that you need to use again soon and won’t be able to unless it’s paid – for example, your basic necessities… housing, food, utilities and medical care.

· Stick to your debt repayment plan as best you can, no matter how long it takes to get things right. Remember…

o Perseverance

o Dedication

o Humility

o Hard Work

o NO FEAR!!!

4. Keep Track of Your Monthly Expenses

· Before you can create a household budget, you’ve got to know what your monthly and annual expenses are.

· Write your expenses down for 30 days if you’re not sure where your money is going. Take a look at your expenses over the last year to get an idea of annual expenses, such as taxes, insurance and subscription services.

· Total each expense on a budget worksheet

5. Create a BUDGET for All Future Expenses

· Whatever budgeting method you choose to use, even if it’s just a plain sheet of paper each month, make a plan for all of your annual expenses on a month-to-month basis. In other words, if you have an insurance bill due in December for $600.00, ideally you’ll set aside $50.00 each month throughout the year. Treat it just as though you’re making monthly payments to the insurance company. If you’re afraid you’ll spend the money you’re setting aside, put it in an interest bearing savings account.

· If your monthly budget totals a sum greater than your monthly income, you basically have two choices. Well, three.

o Cut your expenses further.

o Increase your income.

o Put your head in the sand and ride the storm out, there just might be something left when it’s over. (If you choose this option, please select one the other two as soon as you can handle it. You’ll be so glad you did!)

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