Robert S. Stevens is a Charlottesville bankruptcy attorney. This article provides some money-management tips. If you are a resident of Charlottesville, Albemarle County or a neighboring community and would like to speak to our law firm to learn more about bankruptcy protection, please contact us for a free consultation.
Financial stress is a special breed of anxiety— money management becomes a constant pressure that can make even the bravest soul feel like burying their head in the sand and waiting for the trouble to pass.
If you feel like you are drowning in money problems, this article outlines a series of steps that will help you determine where you stand, take back control of your finances, and reduce your stress.
The first step is to switch from reactive to proactive money management.
Managing your money is much like quitting smoking: it is never too late to start! These tips apply whether you’re filing for bankruptcy or still searching for other ways to weather the storm.
Determine Your Monthly Payments
The first step is learning where you stand. Determining your financial situation is often the scariest part of the process, but doing so will leave you empowered and more confident on how to proceed.
Automatic withdrawals from your bank account will likely include subscriptions, loans, and insurance premiums.
Start by reviewing your credit card and checking account statements for the last three to six months. Make a spreadsheet and include every expense, divided into needs and wants.
- household utilities,
- loan payments,
- and repairs.
- and personal care.
For expenses like utilities, which vary monthly, total the past year’s bills and divide by 12 to transform the figures to average monthly payments. Do the same for irregular expenses like gifts and vacations.
Begin with Fixed Expenses
Expenses like mortgage payments are considered fixed, but there are things you can do to reduce them. Consider refinancing your home and negotiating your interest rate. If you are a renter, consider moving to a less expensive apartment. Consolidate your debt. Shop around for lower insurance rates, which isn’t hard since insurance companies compete with one another. Cancel memberships you don’t need.
You probably need your car to commute to work, but leave no stone unturned in cutting expenses. Consider whether public transport, carpooling, walking, biking, or sharing your spouse’s car could work. If so, consider selling your vehicle to help pay off debts. Research the cost of local public transport if considering this option.
Then there are behavior-dependent fixed expenses such as electric, gas, and water bills. There’s almost always room for savings here. Start practicing habits like turning off lights when you leave a room, wearing a sweatshirt and turning down the heat a few degrees in the winter, only boiling enough water to fill the cup when making tea, and taking shorter showers.
Then there are necessary expenses like groceries. We don’t recommend jeopardizing your health by living on ramen noodles, but are you using coupons when you shop? Are you buying items in bulk to save money? Can you cut costs on junk food, soft drinks, candy, ice cream or other non-nutritional snacks? Do everything you can to keep your expenses down.
Set priorities for fixed expenses
Managing financial straits requires prioritizing expenditures. Your mortgage, rent, and car payments take precedence over credit card debt because not paying off your house or car can result in foreclosure and repossession — the last thing you need. Although unpaid credit card debt will adversely impact your credit score, it can lead to negotiations with creditors that can lower your interest rate, decrease the total interest you’ll pay, and reduce your monthly payments.
Eliminate or minimize debt that is accruing interest at a higher rate than you can earn by investing the same amount of money. Debt with interest rates of 5% or lower, however, is less detrimental and may even be worth carrying if your investments earn a higher return than the interest rate on that debt.
Trim costs in your wants list
Now we’ll move on to the “wants” section.
Often you can save money by scrapping things like cable TV, dining out, alcohol, and other unnecessary expenses.
To avoid a dispiriting reduction in quality of life, replace these luxuries with other pastimes like going on walks, playing sports, and looking for free concerts and entertainment.
Seek additional income
There are plenty of ways to supplement your income, and more options are available than ever before with the internet. Here are some ideas:
- Secure a part-time job
- Explore freelance work (look for opportunities where you can determine your hours)
- Consider renting out a room on Airbnb or another such platform
- If you have a vehicle, consider driving for Uber or a similar company
- Make an inventory of your belongings and sell what you don’t need
- Ask about cash discounts when you pay for services.
Exercise and eat well
Though self-care may seem unimportant, it is a necessary task for surviving trying times.
Financial stress is a self-perpetuating cycle that can lead to unhealthy behaviors. Setting aside time to exercise can cause a nagging voice in your head to ask, “shouldn’t I be spending this time earning money?” Ignore that voice and exercise!
The human body does not perform well under prolonged periods of stress. To arrive on the other side of this experience, you need to play the long game — nourish yourself, even if it means sacrificing an hour of work here and there.
Sustain the changes
Once you’re meeting your expenses, sustain your new money-management habits. Budgeting is paramount. The more detailed your budget, the more control you’ll have.
Your goal is to begin saving again. Create or replenish your emergency fund, money to cover unexpected expenses like car repairs and medical emergencies. Then start funneling extra money into your savings and retirement accounts.
To manage your day-to-day expenses, set aside an allowance for yourself. Each month, perhaps you can spend $75 on things like entertainment and dining out. If you don’t use it all up, it rolls over into the next month or, even better, goes into your savings. Following these steps will ensure you don’t overspend.
If you are still having trouble, consider filing Chapter 7 or Chapter 13 bankruptcy
You may feel there is a stigma attached to bankruptcy, when in fact it is a lifeline to those who cannot find a way out of debt. At the very least, discuss bankruptcy with a trusted lawyer.
Robert S. Stevens has over a quarter-century of experience helping clients in Charlottesville, Virginia and surrounding communities find their way out of debt and offers free consultations — meaning you can discuss your particular situation with someone who knows the ins and outs of bankruptcy law. Contact our firm today for a FREE CONSULTATION to explore your options.