Realistic Budgeting for your Household

household budget expenses


Funny enough, most people I know don’t have a household budget.  Oh, they might have a broad idea of how much they have, how much their monthly bills run, and other “big ticket” expenses, but in terms of an actual household budget, most haven’t a clue.

In my experience, people who have comprehensive household budgets fall into one of three categories: those in financial trouble, those who are exceedingly well-organized, and those whose New Year’s resolution have not yet lapsed.

That said, having a budget is a really, really good idea.  Even if you are financially comfortable, it will help you save, prioritize your spending, and get a realistic picture of your budget priorities.  However, it is not as easy as you might think.

As part of my consumer debt practice, I frequently ask people to outline a budget of their actual expenses.  A few things I have noticed:

-Everyone underestimates food.  The reason is simple: I ask you what your monthly food expense is, and more often than not you will figure out how often you go the grocery, and how much you typically spend on each trip.  This is only part of the equation.  Most families spend a significant amount of money eating out, and this is often under-reported.  A realistic budget should include between $250-$300 per person, per month: that only works out to $3.33 per meal.

-It’s okay to recreate.  “Recreational expenses” are a category every budget should include, and the number should be realistic.  There is nothing wrong with going to the movies once in a while, or seeing a concert.  “All work and no play…” doesn’t end well.

-Some items can’t be measured monthly, such as car repairs, home upkeep, dental bills, annual dues, and other expenses that do not recur on a set schedule.  A client once told me that his budget was just fine, until he blew three tires in the same month; there is no way to precisely budget for that type of expense.  Rather, you should figure out how much these bills typically run per year, and then divide by twelve; call this amount your “contingency fund,” and write it into your budget.  If the money isn’t used in a particular month, set it aside.

Follow the money.  No guess or estimate can ever replace the cold, hard facts.  If you rely on debit cards or credit cards for most transactions, it makes this part easy.  If not, either start, or keep a small pad of paper to record all of your purchases (how much, what for).  The only way to accurately figure out how much you spend is to look at the real numbers coming out of your account.

-Start with a real budget, then work on the target budget.  Too many people conflate the two.  You may see from the “follow the money” step that you are spending $350 per month on recreation, and you may think that is too much.  Resist the temptation to reduce it in your first budget document; first get an accurate budget, then work on changing it to meet your goals.  That way, you can see where you started, and what progress you make over time.

-Finally, take a look at your taxes.  Getting a big refund each year is almost as bad as owing; you are letting the government hold onto your money without paying interest.  If need be, adjust your withholdings; you want to aim for a “break even” result at tax time.  Accountants are very useful in figuring out how to accomplish this.

No doubt about it, budgeting is a chore.  However, it is among the most important things you can do to ensure your financial success.  Household budgets give your spending some structure, and if you keep them up-to-date, they give you a good roadmap of your spending priorities, and areas you can improve.  I can’t recommend them highly enough.


Assets, Hidden in Plain Sight

hidden assets property bankruptcy


Almost every discussion about your financial situation boils down to two important questions:  what do you own, and what do you owe?  While most of us can answer the second question fairly easily (with a little help from a credit report), I am yet to see anybody make a comprehensive list of their assets- the stuff they own- on the first try.

The reason for this is that some assets are obvious- money in your bank account, valuable coin collections, vehicles, real estate- and others are not.  For example, if you have written a story, or invented a process or product, or have a catchy trade-name used in the community, those are assets.  Specifically, those are “intellectual property,” and while it is difficult to figure out how much they are worth, they are worth something.

“The right to sue” is another oft-overlooked asset.  If you can sue somebody, that right has value, and can even (in some situations) be sold.  It definitely can be settled!

Accounts receivable, future tax refunds, and earned but unpaid wages (the money you have already earned, but haven’t yet gotten a check for) are also usually forgotten by my asset-listing clients.  In many states, like California, your vacation time is an asset, since it has cash value.

Knowing how to identify your assets in a comprehensive, detailed way is important in several contexts.  When you are looking to settle debts or assess your net worth, overlooking assets may mean missing opportunities.  When crafting an estate plan, you want to account for all things of value, or else they may be left out of your trust or will.  Finally, when filing a bankruptcy or responding to a judgment debtor’s examination, you need to be complete when listing things that you own.

This is one area where practicing consumer debt law has taught me a thing or two.  “Assets” includes not just the things we see and the things we have, but dozens of different categories of rights, items, and even ideas that, while not obvious, definitely have value.


How to Save a Home in Chapter 13

chapter 13 save home mortgage foreclosure

Most people struggling to keep their home know that bankruptcy is one way to avoid foreclosure.  In this post, I will explain the nuts-and-bolts of how you can save your home- and cure your mortgage delinquency- through a Chapter 13 bankruptcy reorganization.

First, let me briefly explain what a reorganization is all about.  It is NOT a bankruptcy in which you are simply walking away from your debts.  Rather, you are proposing a plan, usually lasting three or five years, in which you will repay a portion of your debts based on your ability to repay them.  Each month, you make a single payment to a bankruptcy trustee, and they pay your debts on your behalf according a plan you draft with your attorney.  That plan, when approved by the Court, is binding on all your creditors.

Now, not every district is the same when it comes to mortgage delinquency.  In some areas, including the Sacramento area, the trustee makes your mortgage payment, as well as repaying your arrears.  This is known as a “conduit” jurisdiction, since the trustee is a conduit for your regular monthly payments.  In other areas, you continue to pay your monthly mortgage payment, and the trustee only pays the portion needed to cure your arrears.

The payment is calculated as follows:  First, your regular, ongoing mortgage payment remains the same.  It must be paid each month.  Second, your total amount of mortgage arrears must be provided for, though usually without interest or further penalties.  For example, if you have a $1,000 per month mortgage payment, are $15,000 in arrears, and propose a five-year reorganization plan, your new payment to your mortgage lender will be $1,250.  That is the ongoing amount, plus just enough to “cure” the arrears over five years (sixty months).

As you can see, the Chapter 13 plan operates as a kind of “reverse modification,” in that your payment is likely to go up, not down.  However, being in a Chapter 13 does NOT mean you cannot apply for a loan modification.  Several of my clients have entered Chapter 13 to save their homes from foreclosure, and have later gotten modifications that deal with the arrears and lower the monthly payments.  If that happens, the court will usually approve a modified plan that allows you to pay the modified amount to your mortgage creditor, so you are not locked in to the higher payments of your plan.

Chapter 13 plans are not “fire and forget.”  They can be modified at any time.  While you are in the plan, however, your mortgage creditor cannot foreclose on you, as long as you keep making your payments according to the terms of the plan.  It is a solid defensive strategy to avoid foreclosure.

One additional note about Chapter 13: if you have a second mortgage that is entirely underwater (i.e. your home would be underwater even if you didn’t have a second mortgage, but you do), most courts will allow you to “strip off” the second mortgage, and treat it as unsecured debt.

If you have taxes, car loans, or other secured debts, those might also affect your Chapter 13 plan, so you should talk to your attorney to see what the broader plan will look like in your situation. However, the basics of saving a home through Chapter 13 will be consistent with the explanation above.

Chapter 13 is usually the best solution if you are seriously delinquent due to an interruption in income or a major life event, but you have enough money to resume making your mortgage payments, plus pay a small part of your arrears each month.  It is not for everyone, but in many cases, it is exactly what a homeowner needs to avoid foreclosure and keep their home.