Every day, I see individuals and couples alike who are considering bankruptcy because they are running in the red each month. Part of my analysis when I sit down with a potential client is very simple- what is your net income (after withholdings) and what are your monthly expenses?
This simple calculation says a lot, but many have never put pen to paper to figure the numbers. Even more insight comes from reviewing paystubs and bank statements, and sometimes finding that the numbers are not what we thought they were.
An easy way to do a basic financial check-up is to go through your income and expenses- off the top of your head the first time. Estimate what you pay monthly for rent/mortgage, electric/gas, water, cable, internet, cell/home phone, home maintenance, transportation expenses, food (eating out and groceries), clothing/dry cleaning, HOA dues, insurance premiums, secured loan payments, daycare, pet expenses, children's extra-curricular activities, work-related expenses, etc. Compare the total expenses against your estimated income.
Now, take a look at your paychecks over the past 4-6 months and get an average of monthly take-home pay. Does it differ from your estimate? Go through bank statements or invest in home bookkeeping software. See if you may be spending more in certain areas than you thought. One of the areas where we see the biggest discrepancy between what people think they are spending versus what they actually are is food. Groceries are becoming more expensive and eating out adds up quickly.
If you look at your income versus expenses and see nothing left to make payments on high balance credit cards or lines of credit, or your income does not support a hefty car or home mortgage payment due to decreased income or job loss, taking action right away is important. It may mean calling your lenders to inform them of the circumstances and ask for help, or it may mean seeking advice from a bankruptcy attorney.
If your situation is one where tightening the belt in certain areas will do the trick, you have taken your first step toward solving the problem- educating yourself on the numbers. Now you can formulate a plan for success.
Denise K. Aguilar is a local attorney whose Ahwatukee practice focuses in consumer and small business bankruptcy. Denise can be reached at 480-455-1881 or 602-252-4991.