Creating a Budget to Help You Get Out of Debt and Improve Your Credit

We’ve talked a lot on our blog about how to get out of debt and how bankruptcy can help many people get back on track. But how can you prevent debt from accumulating in the first place? To do that, you should know how to create a basic budget.

A monthly budget allows you control over what you spend. It can help you decide how and when to spend your money, plan for your future by saving money each month through reduced wasteful spending, and reduce your overall debt.

If you’ve never tried to create a basic budget before, it can feel daunting, but rest assured, it can be done easily. And if you’ve tried budgeting and still have more debt than you can manage, let me know. We may be able to help.

In the meantime, we’ve put together this step-by-step guide to creating a basic budget to get you started.


5 Steps to Create a Basic Budget

1. Know how much you have coming in.

It sounds obvious, but many people don’t have a clear idea about their total take-home pay, which is the most essential budgeting figure. Combine all sources of your income after taxes — this will show you how much cash you have to work with and provide the framework for your new budget.

2. Make a list of what you spend in a month.

Categorizing your expenses lets you quickly see where you are spending money on unnecessary items. Start with the bigger categories first — for example, housing and utilities — before breaking them down into smaller expense categories, like shopping and entertainment. Once you’ve decided on your categories, sort all of your expenses for the month into them and add up what you spend in each. Check bank statements, your checkbook, receipts, and any other records to get a good handle on how much you’re actually spending.

3. Develop two separate budget lists.

Have one list for essentials and another for extras. Essential items are things like the mortgage or rent payment, electric bill, and groceries. Extras could be eating out, buying new clothes, or going to the movies. Look through these lists to find flexible items where you can cut back. Once you’ve done this, add up your essentials list and your extras list separately. This will allow you to make cuts more easily if needed.

4. Subtract the essentials from your monthly income.

This will help you see where you’re at. If this is your first time budgeting, there’s every chance you’re spending a little (or a lot!) more than what you actually make. If you are, go back to each item on your two lists, and see where you can cut back. There will normally be at least one or two areas where this is possible. The goal is to find areas of wasteful spending and cut that spending off so that the total at the end of the month will show that you’re bringing in more than you’re spending.

5. Set realistic targets

Keep a categorized list of your spending and regularly update your budget with your totals in each category along with any pay you receive. Don’t get discouraged! Problems are common in the first few months of budgeting, and you’ll sometimes come across unexpected expenses. Hang in there and keep going, sticking as close to your targets as possible. Once you’ve made it through a month or two, you’re on the road to success! You’ll be able to more easily see your weaknesses, and you’ll learn how to readjust items as needed.

There’s no magic wand when it comes to budgeting — it takes time, practice, and a commitment to stick with it even when it’s difficult. But over time, you’ll have to check the numbers less and less and ideally rarely struggle to make ends meet. You’ll find you’re still able to enjoy extras in moderation, and you might even be able to put some into paying off extra debt.

When the Budget Just Isn’t Enough

Other steps to improve your credit include:

Of course, if you’ve taken a good, hard look at your financial situation and still cannot manage the debt you owe, give us a call.

Not only can we help you reduce or reorganize your debt through a Chapter 7 or Chapter 13 bankruptcy, but we can help you get your credit back on track after filing, too.

Contact us today to get started with a free appointment.