So you have your first paycheck of the new year, this year will be different right? You decided to save more, spend less and you are doing great, no morning lattes at that expensive coffee shop and of course you are packing your lunch everyday. Let’s be honest -you are sipping on a latte right now at your favorite coffee joint and your lunch never made it out of your fridge at home. It is okay, no worries, most of the people sitting around you gave up their resolutions last week and the others really never started.

The good news is that resolving to save more and spend less is not really about your latte or your lunch, it is about knowing how far your paycheck stretches and being mindful about how and where you spend money. Even if you spent last weekend and your paycheck at the mall, you can still make 2013 the year you save more and spend less. It is not to late to start or restart your resolution and it is not as hard as you may think, in fact it can be broke down into just a few steps.

First, take a good look at your paycheck. What is coming out of your paycheck? How often are you paid? What is that net figure that you deposited? In the age of direct deposit, it is easy to go months without looking at a pay stub. Do not fall into that trap. For those of you looking at the first pay stub of 2013, there will be a surprise of a few missing dollars from your net pay.  You can thank Congress for not extending the payroll tax cut, but nevertheless, this is the new amount of your take home pay. (For example, if you are paid on the 15th and the 30th and the figure that goes into the bank every month is $1200, then you have $2400 of net income (take home pay) to use every month.) You have to figure out exactly what you bring home every month in order to determine how much you have to spend every month. If your pay varies because of shift work or hours, then look at last year’s pay and take the average of your lowest four months and subtract about 2%, as a rough estimate of your average net pay.
Second, add up your mortgage or rent, car payment, average utilities, cable, mobile phone and insurance policy premiums. These are expenses that should stay about the same every month. Depending on how you cool and heat your home, some of your utility bills may vary, but generally one replaces the other. Don’t panic if you have no idea what the average of these items are for your home, call your utility company to ask your average.  Many utility companies actually provide websites where you can review your usage, while others provide this information on your monthly statements. If you have children, now is also the time to add in daycare or childcare needs you use for work. Lastly, add up only the average amount of gas you use to get back and forth to work and your children’s daycare/school, if applicable. Once you have determined this figure, subtract this amount from your monthly net or take home income.
This amount is considered your disposable income.  In reality, this is the only money you can work with for your budget. In some cases, you may be able to cut down on your utilities and other “fixed” bills, but the savings in most cases is only a few hundred dollars a year and not usually enough to make a difference in your overall finances. Before you turn off the air conditioner or cut your cable, first evaluate where your disposable income is going every month, you may still be able to watch your favorite TV programs and save money.

Using the figure of $2400.00 from the example in step one above, let’s just say that you use $1600.00 for fixed examples leaving only $800.00 for disposable income. This is the amount you need to use to determine whether or not you can have a latte every day, just one a week or if perhaps you need to just fix your coffee at home. It is also from this amount that you need to follow the old slogan of pay yourself first. But, wait! We have not budgeted for food, toiletries, doctor visits, pet and child expenses, clothing, and of course the payments on your credit cards. Unfortunately, this is where things get tricky for a single healthy person with no credit card debt.  A disposable income of $800.00 could provide for more than a few days of lattes and at least a hundred dollars or more for their saving account, but for someone who has some credit card debt this number starts to shrink.

If you add in a car repair, a sick child or even an unexpected vet bill this number starts to feel like you are working paycheck to paycheck, or worse, that you are spending next month’s income and therefore relying on credit cards or pay day loans to make it until your next paycheck. This is where everyday budgeting can turn into life-changing decisions.

If you follow the steps above and your leftover number is not realistic or if you feel like there is no way that you could ever pay off your credit card debt even if you never used a credit card again or even if you tried to cut your fixed expenses, you should explore bankruptcy as a budgeting tool.

Bankruptcy and credit counseling are actually powerful budgeting tools. If your budget, without the credit card debt, is otherwise manageable, then explore how bankruptcy can really change your life by reducing or eliminating your debt.

Imagine being able to save the money you now spend on credit card bills.  This money can protect you from being forced to use credit cards in the future for those unexpected bills, such as the emergency car repair or unexpected vet bill, not to mention these funds over time can provide a cushion should you ever lose a job or become sick and need to take time off work. For some, even the cost of bankruptcy many not fit into their current budget, but it is important to note that most folks can, with planning help from their bankruptcy attorney, can afford bankruptcy.

Our firm is committed to helping you evaluate your budget and if necessary helping you understand and afford the bankruptcy process.

Don’t give up on your financial resolutions.  Take control of your paycheck, your expenses and more importantly your life. For those that have already eliminated their debt through bankruptcy and are still concerned… don’t be.  Ask for assistance again as sometimes it just takes a second pair of eyes and hands to help you go through your current bills and figure out where to start.

Regardless of whether you are just looking to save a little money or if you really feel like you are living paycheck to paycheck, understand how to budget by understanding your finances.  Once you understand what money you have, your commitment to staying on budget becomes easier and you can finish your latte confidently.

For more information on our bankruptcy practice, contact us at


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