Learning to manage money is a life skill everyone should possess, though it rarely gets taught in any formal educational setting. Money management skills are valuable to own at every stage in life, especially when trying to manage debt.
For many debtors however, the lack of money management skills can cause turmoil and rough financial situations. This can, and many times does lead to bankruptcy. If you do end up filing bankruptcy you are required to take a financial management or credit counseling course that will teach you how to handle your money going forward. Unfortunately, these lessons are taught after your finances have already spiraled beyond your control and put you in this predicament. These are great tools to use going forward; if you are able to effectively manage your money during your financial comeback, you will be prepared with the right skills to be able to manage it through thick and thin.
Responsible Money Manager Tip #1: Create a Budget
Budgeting often scares people because it seems challenging and time consuming. But, it actually isn’t too difficult and the benefits far outweigh the cost of the time it takes to do.
First, determine how much money you have coming in every month – this usually includes income from your job as well as any dividends and other miscellaneous money you get paid. If your income fluctuates drastically you will want to budget from your average monthly income.
Second, determine your monthly expenses. What do you spend money on every month? Typical expenses include food, house or rent payments, credit card and loan payments, utilities, cable, internet, phone, insurance, clothing, gas and entertainment. Some of these expenses are set amounts (think bills) and others vary based on your activity during the month (i.e. gas and entertainment).
To develop your budget you will want to start by subtracting the expenses that are “set” or “fixed” from your monthly income. Next you will subtract your remaining expenses. You will either be left with a positive number, which indicates how much excess money you have to save or spend, or a negative number that alerts you to a budgeting problem.
Responsible budgeting is done by setting an amount to abide by for each of your expenses that allows you to spend within your means.
Responsible Money Manager Tip #2: Prioritize Debts
Most debts require a minimum monthly payment, which you must stay up to date on. Don’t ever ignore or dismiss lower-interest rate loans, but, if your budget permits, you should allocate additional funds to debts with the highest interest rates, first. This allows you to pay off those debts that are costing you the most right away.
Responsible Money Manger Tip #3: Identify Must-Haves and Must-Go’s
After you have created a list of all of your expenses, identify which are necessities and which are commodities. Necessities are “must-haves” and commodities are expenses you could give up if your budget required.
Common necessary expenses include food, mortgage or rent payments, utilities, insurance, credit card payments and loan payments. These must be paid monthly in order for you to remain in good standing or keep your property.
Some common commodities generally include cable, internet, clothing, gas (other than necessary to get to and from work/school) and entertainment such as buying, renting or seeing a movie, eating out or picking up the latest book or magazine. These commodities don’t have to be cut out of your life completely, but if your budget becomes tight or your expenses begin to add up to total more than your monthly income, this is the first place to limit spending.
Simply becoming aware of how you are spending your money will open your eyes to all of the unnecessary expenses made within a month and where there is opportunity for saving. When times get rough, it is helpful to know what costs can be cut and what your monthly income is capable of supporting. If things do become out of your control, for whatever reason (this happens all of the time), there is help available. Bankruptcy attorneys can offer advice on your financial situation and walk you through your options – talk with one of us today, at no cost and with no obligation, to get back on financial track.
