In this third installment, we will look at ways to help you counter the banks’ and retailers’ campaigns to get you to part with your money and keep more of it for yourself.

Credit limit. Most credit cards have a spending limit, or credit line limit. Even though the credit card issuer doesn’t want you to charge more than that, they often approve the first few charges that put you over the limit.  And then they can charge you an over-limit fee that just adds to your debt.  Plus, going over the limit can trigger an interest rate increase not only on that card, but any other credit card you hold…even with different credit card companies. So keep an eye on your charges, and stop several hundred dollars short of your limit. Give your self “breathing room” to allow for interest charges, late fees (which you should not have once you sign-up for “auto pay” as we discussed last month), and charges that are applied to your card automatically that you may forget about, like newspaper and magazine subscriptions or cell phone and cable charges.

Budget limit. Just because your credit card company will allow you to charge, for example, up to $10,000 doesn’t mean that you can afford to make monthly payments on that much debt. So if you are struggling to keep up with your minimum payments on your current debt, do not make your financial situation worse by racking up more debt. Stop charging. Period. Some consumers take extra measures to protect themselves, like keeping their credit cards at home or even (as you may have seen on a popular television commercial) freezing them inside a block of ice. As long as you keep increasing your debt, you decrease the likelihood that you will pay off the debt in the near future, or ever.

Spending limit.  Do you have a personal “spending limit”?  A “spending limit” is a pre-determined amount, which could be as low as $50 or as much as $500, that you will not spend without a self-imposed waiting period. What might this look like in real life, and how could it be helpful?  Imagine that you stopped by a big box retailer and noticed a new DVD player on sale for fifty percent off. Your DVD player at home works, but a few times recently you noticed some minor problems with it. It costs $50 on sale, which happens to be your self-imposed “spending limit.” You remember that you promised yourself if you wanted to buy anything that cost $50 or more that you would wait a minimum of two days before taking action. Here’s what could happen in those two days:

• You might discover that a $12 cleaning kit fixed the minor problems you had been having with your DVD player, and now you don’t need a new one at all.
• If your DVD player does break, you might notice one on Craig’s List for less money that works just as well.
• You might find a similar unit at a competitive retailer for less.
• You might remember that you have a birthday coming up and decide to wait and use the money you normally receive from family members to pay cash for the DVD player. Yes, the fifty percent sale that you saw will be over by then, but in today’s economy, retailers will soon be offering another sale to encourage cautious consumers to part with their money.
• You might decide that no matter how cheap the DVD player is, you need to save up cash to pay for it because you cannot afford to increase your credit card debt any further.  Even if you save your money and pay $65 cash a few weeks later, that is cheaper than paying $50 on credit card and taking months to pay it off. The added interest could easily turn that $50 DVD player into a $95 or $125 model over time.

Try it. See what can happen when you exercise self-control and fiscal restraint. Learn to say “no” to your impulse desires, or at least start saying “not today.” Self-imposed limits are never fun in the excitement of the moment when you want to buy. The sense of pride and accomplishment you will feel when you take control of your spending, instead of letting your spending control you, will be well worth it.

As you work with your bankruptcy attorney to improve your finances, a budget can keep you moving forward.  Let’s look at common reasons budgets fail, and how to make a budget your friend instead of your enemy.

1. Unrealistic expectations. Don’t start a budget in the land of “should”…I should be able to live on this; this should be enough for groceries; I should be able to eat every meal at home. Sound unrealistic?  For a budget to work, it must start in reality, where you are today.  For the next 30 days, write down everything you buy and what it costs, from 50¢ for a soda to your housing.  Then add all your expenses up, breaking them down into categories:  eating out, groceries, dry cleaning, utilities, payments on existing debt, gasoline, kids’ lunch money, home maintenance, etc.  This is your “Monthly Expense Sheet” First Draft.

2. Lack of planning. You’ll have expenses later in the year that didn’t come up in your 30 days, right?  Like birthday gifts, inspection and registration for your car, summer camp, auto repair.  Take some time to plan; think of everything you might spend money on in the next 12 months. Make a list, and realistically estimate what you might spend on each.  For gift giving occasions, be sure to include the name of each person and how much you plan to spend. This is your “Periodic Expense Sheet” First Draft.

3. Lack of Discipline. For each Periodic Expense, divide it by 12.  That’s how much money you need to set aside each month to be ready for that expense.  If you listed “Auto Repair $240/year = $20/month” then add a line to your “Monthly Expense Sheet” that reads “Auto Repair $20/month.” Put that same info on an envelope and each month, tuck $20 into it. Be disciplined: only use that for auto repairs.  Do this for each of the item you transfer from your “Periodic” to your “Monthly Expense Sheet.”

4. Budget Deficit. If you’re like most people, when you add up everything on your “Monthly Expense Sheet,” your total is more than you bring home.  That’s a budget deficit.  But don’t despair!  It’s labeled “First Draft” because you’re not done yet.  This is where the work begins.  Reduce your expenses.  Keep telling yourself, “If I want my finances to change, I have to make changes.”  How much could you save if:  Everyone in the family brown-bagged it for lunch? You downsized or eliminated your cable service? You only bought meat at the grocery store when it was on sale? You lowered your thermostat in winter by 2 degrees (and raised it by that much in summer)? You drew names for a gift exchange at major holidays instead of buying for every adult in your family? You carpooled with a coworker?  Don’t be defeated by a budget deficit!  Be emboldened by it…get courageous and creative.

5. Missing Your Treasure. Take a good look around your home, behind closed doors and cabinets. You probably have “stuff” other people might buy. For maximum profit, use garage sales as a last resort. Start with eBay and Craig’s List.  Use the extra cash you make to pay down debt.

6. Forgetting the Mission. Your bankruptcy attorney’s mission is to help you improve your financial future.  Don’t sabotage that mission by spending money on things you don’t need, like the latest electronics or expensive vacations.  Keep the mission in mind: making changes today that will change your family’s future forever!