Elihu Root once commented “About half of the practice of a decent lawyer is telling would-be clients that they are damned fools and should stop.”
What does that have to do with Groundhog Day, and more importantly, what does that have to do with debt?
A lot actually. Bill Murray is the lead in the movie Groundhog Day. For those who are not familiar with the film, Murray’s character Phil Connors plays a grumpy weatherman who is unhappy with his lot in life and everyone around him is the worse for it. He finds himself reliving February 2 over and over again until he can get it right.
Our financial lives can be a lot like Groundhog Day. We do the same things over and over again and expect a different result, but it doesn’t happen.
I had a client in my office last week who traded in their $1300 luxury car payment for a $1450 luxury car payment because they were bored with a car they bought six months ago. $1450 is a mortgage payment and then some to a lot of people, but this person was trained to attach their self-worth to the fanciness of their vehicle.
While this borders on the extreme, a lot of our financial woes come from not writing a budget, and if you want to avoid sitting in my office at the end of your rope, a personal budget and emergency savings plan can help.
One of the great tools a bankruptcy lawyer has is the Schedule J. Schedule J is an expense budget for a bankruptcy filer.
The person filing the petition is forced to put their expenses on paper and on purpose and stick to it. Schedule J is a big reason why Chapter 13 plans succeed.
You don’t have to be in bankruptcy to have you own Schedule J. Schedule J is basically a budget, and you can have a budget without being in bankruptcy.
Some of the things on Schedule J include:
- Rent/mortgage
- Food
- Electricity
- Heating
- Gasoline for car
- Car payments
- Other loan payments
- Clothing
- Other expenses
Having a budget and sticking to it is key to keeping your finances in order. I would add the following as well:
- Emergency Fund
- Fun and Entertainment
Try to save $100 per month in an emergency fund every month. Dave Ramsey suggests starting an emergency fund of $1000 but then not adding to it until you are debt free. While I agree in the first part, I think saving an additional $100 per month will help you avoid borrowing more money down the line. Think about it, when was the last time you had an emergency that cost only $1000?
In all fairness, Mr. Ramsey is based out of Tennessee, and things are cheaper down there, but I recommend starting with $1000 and adding $100 per month.
Now its time for me to take some of my own advice. Its been about two years since I’ve revised my budget, and life certainly has changed. I certainly don’t want to wake up tomorrow morning and find out its still February 2nd and I still don’t have a financial plan.
