There are a multitude of different reasons why people go bankrupt, but a more common reason is poor budgeting. Developing a budget and sticking to it can be hard for even the most attentive and frugal among us; just think how difficult it can be for a large household on a single income or a family with large, unavoidable health care expenses, for example. The good news is that there are basic guidelines and good rules of thumb to help get your started.
- Generally speaking, your rent or mortgage should not account for much more than 30% of your monthly household income. If there are many other sources of debt, like student loans or credit card debt, that percentage may decrease to make space for your mandatory monthly payments.
- Set aside money for savings. That means, don’t touch this money! Ideally, 10% of your household income will go to savings, but if this seems like too much for you and your family’s budget, simply put aside as much as you can. Your savings can eventually be put toward buying a home, your children’s education or purchasing a vehicle.
- Create an emergency fund that includes about 2-3 months of income. In the event of a crisis, such as unexpected unemployment, this financial cushion will help you search for a job and get back on your feet without missing due dates for bills and payments.
And here are two helpful hints to help you stay within your budget, live comfortably, and avoid burdensome debt problems.
- If you are looking for ways to trim your budget, take a look at how much you’re spending on entertainment, namely restaurants and eating out. Food is a big expenditure, and eating at home can save families lots of money.
- Take stock of your recurring minor expenses, like your morning latte or vending machine snacks at work. These expenses add up! Find ways to reduce or eliminate them. For example, it may be cheaper to buy an espresso machine for your home or bring snacks to work.
If your debt problems seem to be spiraling out of control, please consider calling McFarlin LLP. We work with many clients who are facing bankruptcy. Let us help you through it, so you can retain what’s valuable to you and start on a fresh path with shrewd budgeting and saving strategies.