Getting Back on Track – Budgeting for Those in Crisis
by Michelle Jones

We often hear from readers that are in financial crisis.  This column was written for them, and anyone else who is struggling to get back on track.  Some have already signed up with a credit-counseling agency, and a few have already filed bankruptcy.  But even with this additional assistance, many still can’t seem to catch up.  Though their financial details are different, the general family condition is the same – frustration, despair, and fear.

Fear of not being able to get back on track and live a better life.

*  *  *

However bad things may be, everyone can get back on track.  It will take perseverance, dedication, humility, and hard work.  Just as with many other problems we may face in life, there is no quick fix. 

If you need to get back on track financially, here are 7 major points to consider…

1.  Take responsibility for where you are, right now. 

• No matter what circumstances may have thrown you off-track, if your feet had been on solid ground in the first place things probably would have turned out better.  And you may have had a savings account big enough to handle whatever came your way.

• I know that this step is not easy, and it may even take you several years to come to this point, but however long it takes, you need to get there.

• Accept it.  Then move on.

2.  Do whatever it takes to keep your head above water. 

• 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. 

• Read my column titled “15 Ways to Create More Cash,” it’s in our archives.  Maybe it will give you some new ideas or confirm what you already know you need to do.

3. Make a Plan to Get Out of Debt.

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

• You’ve got several choices when deciding which bill to pay off first.  After listing all of your debts, work to pay off one of the following first…

• The bill with the smallest balance.  (This is usually my recommendation as it yields more money quickly to put towards the remaining debts.)

• The bill with the largest minimum payment.  (Same results as above.)

• The oldest bill.  (This is especially important when a debt has gone into collections, or is past due.)

• The bill that’s the most behind. (If you have lots of 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 will be more willing to work with you than others, as I wrote about in my 24-page report “Dealing with Debt,” which we provide free for all of our subscribers.)

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

• 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 and medical care.

• Stick to your bill and/or 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 our Basic Budgeting 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 to a sum greater than your monthly income, you basically have two choices.  Well, three.

• Cut your expenses further.

• Increase your income.

• 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!)

6.  Keep your budget in proportion to your income.

Here’s an example of what your monthly budget expenses (percentages of net income) could be, if you have one category that’s higher or lower than what’s listed here, then you should adjust the remaining categories accordingly…

• Necessities  

• Housing                30%

• Food                    10%

• Debts                     5% 

• Medical                   5% 

• Insurance                5%

• School/Childcare       5%

Extras

• Auto                      10%

• Clothing & Gifts         5%

• Entertainment           5%

• Investments/Saving  10%

• Giving                    10%

Total                             100%

7. And Last but Not Least, Take it One Day at a Time. 

• Do everything you can do to make your finances better, and don’t be afraid to ask for help when you need it. 

• Set aside a time each day, or each week, to work on the bills (calling creditors, setting up the budget, mailing payments, etc…). 

• Then put the bills away and go have some frugal fun.  Enjoy your life, and your family!
  
   

Michelle Jones, author of Frugal Family Recipes and Dealing with Debt, is dedicated to helping families save money and live a better life.  She's also a frugal mom of 4 and the Publishing Editor of Living a Better Life: The Free Money-Saving Tips Ezine.  Please visit www.BetterBudgeting.com to sign up for your free subscription!

Copyright © by Michelle Jones.  All rights reserved.  Reprinted with permission.

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