Making a Budget due to financial strains
and the Coronavirus (COVID-19)

This one is tough for most.

I’ve spent over 33 years helping people get through financial disasters and a single common bond between almost all of my clients is the lack of a written budget.

You can find all kinds of budget advice on the internet, so I’m not going to re-invent the wheel with budget spreadsheets here.

The budget you need is a disaster budget.

Now.

This budget is “family first.”

You start with your minimal, basic living expenses.

This will include housing, transportation and an allowance for basic living expenses like food, gasoline, utilities, etc.

Anything left over is “disposable” meaning available to pay debt.

Example:

Using the standard guidelines for eligibility for bankruptcy relief, for a family of 4 with net (take-home) income of $5,000 per month, the budget looks like this:

Net income         $5,000

Housing                $900

Car Payment      $350

Living exp            $3300

Disposable          $450

With $450 per month you might be able to make minimum payments on your debt, and make it through this  financial crisis.

If your  minimum payments are more than this, then you would contact the creditors and see if you can negotiate lower payments, or suspended payments.

You might consider a debt consolidation loan.

You could pay less than the minimum on your debts, even if the creditors do not agree.

Paying something is better than paying nothing at all, if you are able to make any payment at all.

Paying less than the minimum is called a “partially performing account” and generally these accounts are not sent to collections as quickly as those accounts not being paid at all.

This approach will still affect your credit score, but that’s not our primary concern at this point.

Note that we used $3,300 for our living expense budget.

This comes from standards we use in the Southern District of Ohio Bankruptcy Court.

These are guidelines we’ve used for years and that have been commonly accepted, although they are not part of any bankruptcy rule of law. And, as guidelines, there are adjustments which are made depending on individual needs and circumstances.

These guidelines are:

Family size of one: $2,700

Family size of two: $2,900

Family size of three: $3,100

Family size of four: $3,300

Add $200 for each additional family member.

This is not for any debt payment. The amount s you pay for rent or mortage, car payments, etc are not included in this family allowance.

To this amount, you would add any daycare expenses, extra medical expenses over $60 per month out of pocket – per person, health insurance costs you pay out of pocket (not deducted from your pay).

If you can make adjustments in your budget, and make arrangements with your creditors if needed, you could make it through on a reduced budget.