Now that you’ve established where your money is going, you should go back to Chapter Seven of this book and review each item in your current budget. Where are you spending the most money? Since you are considering bankruptcy, circle those areas that are
causing the greatest problems and talk with your credit counselor about how to manage those areas better. Ask yourself the following questions:
1. Into what large categories does most of my spending fall? (groceries, eating at restaurants, utilities—electricity, gas, water, land phone, cell phone, cable—car expenses and other transportation, etc?)
2. Everyone has situations arise that they don’t anticipate. Which of my items represent financial emergencies (e.g. car repairs, dental or medical expenses, etc.)? How much did I spend?
3. An often repeated statement is that nothing is certain but death and taxes. For most of us there are also gift-giving occasions—birthdays, Mother’s and Father’s Days, holidays, graduations—you name it, and it frequently requires you to bring a gift. Did I purchase too many gifts or were they too expensive? For whom did I buy, and how much did I spend?
4. What quarterly, semi-annual, or annual expenses such as income taxes (self- employed), personal property taxes, property insurance, car insurance, renters’ or homeowners’ insurance did I have? Which ones caught me by surprise? What and how much were they? When did they occur?
5. Now think about where you spent your money and how that correlates with the goals you just set for yourself. What did I do in the past month to help me attain those goals? For example, would I rather stay out of debt or take an expensive vacation?
6. Did I have expenses that, while enjoyable, might be considered luxuries that I could have done without or that could have been replaced with a less costly alternative.
7. Which of the items in my spending record actually helped to increase my wealth? Try highlighting them with a color highlighter or putting a star next to them in another color.
To get the most from this exercise you must discuss the specific factors that caused your financial problems with your certified credit counselor. Some factors, like a period of unemployment, may have been beyond your control, but you also may have made bad choices. Taking control of your future financial life requires an honest and thorough review of your budget and recognition of problem areas that need to be addressed.
Ideas for Increasing Income or Reducing Expenses
By now, you and your credit counselor have already identified some ways to increase income and reduce expenses. The list that follows is intended to provide additional ideas. Use it to help you to think of ways that will help you the most, but remember that some of the things you think will help increase your income might have an additional cost attached to them. For example, if you choose to take a second job, will you also face higher child care costs? It’s best to examine choices from all angles to be sure they will work for you.
Increase income (check those you can try)
Get a second job in the evenings or on weekends Look for a better-paying job
Market any skills you have as a consultant, or give lessons in an area you know (in addition to your full-time job)
See if another family member can get a part-time job
For a short time, contribute less to your 401(k) or other retirement plan Get a roommate if you have extra space
Rent out a room, garage, or barn Sell an asset
Sell an unneeded vehicle, collectable, or some other possession
Obtain entitlements for which you are qualified (Medicaid, SSI, WIC, utility assistance, education, and food stamps)
Use assistance for medical bills (apply at hospitals and offices for assistance) Seek legal assistance to obtain court-ordered child support
* Here are some ideas about changing the amount of taxes being withheld from your pay to “increase” your income. First, reducing your withholding amount (by increasing your exemptions on your W-4 form) does not increase your income, it reduces the amount of taxes you pay each month. This has the effect of increasing your monthly take-home amount. If you reduce your withholding too much—that is, have too few taxes taken out each month—you may be faced with a major tax bill next April. On the other hand, many people use their withholding amount as forced savings and have more taxes withheld than is necessary. We all like to receive a nice, big refund check in April. However, you should understand that your refund check is essentially an interest-free loan you are making to the government. Rather than lend money unnecessarily to the government, why not adjust your withholding amount so that you receive a modest refund—say a few hundred dollars—and use the extra monthly take-home amount created by the lower tax withholdings to increase the monthly amount you are saving or investing. You should meet with a financial advisor or tax specialist to determine the proper amount of taxes to withhold based on your situation.
One more note on taxes. Many tax preparers now offer to pay customers their tax
refunds immediately and allow the customer to have their refund check deposited directly into the tax preparer’s account when it arrives. This is a loan, and the tax preparers charge a fee for this service which can be very expensive! Better to be patient and save yourself some money.
(Reduce Expenses Worksheet has been removed.)