Excerpt from The Money Trap...
Ok, get out a pad and a pen. Let's do your spending plan. Don't worry if the whole idea scares you, don't worry if you have trouble keeping focus, or you can't do very much in the first sitting. Give yourself a break. Go for a walk. Come back to it tomorrow. But stick with it. And don't worry if you get confused or spaced out about the numbers and the money. It's natural. Do your. best, and take it at your own pace. In the end you will have something very valuable: a supportable emotional and financial structure.
The first entry, right at the top of the page, is Net Monthly Income. This is your take home pay, after taxes and other deductions. If you are self-employed or own a business, use the last six months average net income if you feel it will reliably be similar in the coming months. If not, use the most modest projections for the next six months.
That net monthly income is exactly how big the pile of money is that you get to spend in the whole-wide-world store. The whole rest of the plan will be your attempt to take care of yourself by carefully spending in each category in self-care, fixed overhead, and personal requirements, and honoring the debts to your creditors, without running out of money. As a rule of thumb, I like to save enough each year, at least, to cover one month's expenses. In other words around 8% of net income. If you can't, make it 5%. If you still can't make it 2% but save something regularly.
Put the stuff that takes care of you first.
I know the feeling is you do it the other way around--how much is the overhead, how much are my minimum monthly payments, etc. Don't do it that way. Put yourself first. If not, you risk the plan backfiring from that pent up demand. You know, the things that give you a sense of calm, of personal care. Some people put massages in this category, some put movies or plays or dance. It doesn't matter what t is as long as you put your needs right at the top. Create line items for each.
Next do your fixed expenses: rent, utilities, car, insurance, phone, etc. Then the variable expenses: groceries, restaurants, household, medical, clothes, entertainment, transportation, etc.
After you have carefully asked yourself how much is the right amount in each category, and that means this-taking care of yourself while neither depriving nor indulging--then you can see what is left to repay creditors.
Repay your creditors on a pro-rated basis. That is give the percentage of the total you have left to each creditor according to what percentage they are to your total debt.
Be on the lookout for "shoulds." They can be dangerous places where the spending plan gets hijacked by guilt and shame. And remember, no expense is literally fixed. Some are harder than others to reduce. Some are very much harder. But all are possible if the plan just doesn't work without hitting the current fixed expenses as well. I recommend going through the whole process we just went through two or three times before you consider the sometimes traumatic step of reducing rent or car expense. Or, much more difficult indeed, private school tuition.
Pretty much everyone has a category or two where it would be better if they spent more. Those may be even more important to increase than the ones that need t decrease. Taking care of yourself first is the byword.
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