Learn How to Make a Budget

It is no exaggeration to say that bankruptcy is a drastic measure for people to take. The fact that filings for personal bankruptcy in the United States have seen a considerable upswing in recent years does not change the notion that bankruptcy is a serious undertaking, involving long-lasting effects on one's credit and employability.

In making a budget, the name of the game is slashing costs. For many people struggling with debt, it is reckless spending that gets them into trouble with creditors in the first place. Oftentimes, it is buying things they don't need that gets them in such financial peril. Accordingly, for anyone in debt, a key component of budgeting is cutting out as many "wants" as possible from one's list of expenditures.

Obviously, that sports car you've always dreamed of will have to be put aside indefinitely. Even something as mundane as cable television, though (despite the likely disagreement of some Americans), is realistically not a must-have and still adds to the negative numbers in one's ledger. Consequently, in making a budget, debtors may find services like that need to be scrapped, at least for the time being.

As much as removing non-essentials from the picture is a critical goal of budgeting, if you are looking to bypass bankruptcy, so too must you assess your "needs" for ways in which they can be addressed more cost-effectively. For instance, getting take-out and eating in restaurants may be putting much-needed food in your belly, but these meals can add up in subtracting from your wallet. In making a budget and taking food into consideration, it will likely be more profitable for people to pack lunches and dine on leftovers than to eat out all the time.

Another example is clothing. In budgeting, people may have given little thought to how much the way they dress can affect their finances. However, the price difference between, say, designer wear and department store deals may be quite substantial. As such, individuals should scrutinize their wardrobe for signs of excess.

Additionally, making a budget not only includes rationing one's own funds and expenses, but monies given to others as well. Of course, some "donations," such as dollars owed to the State and Federal Government for taxes, are not so readily negotiable. As for handing out money for birthdays, Christmas and other special occasions, however, it may come to the individual and his or her family having to give less to friends, family and charities. Understandably, there may be feelings of guilt and disappointment from the different parties involved, but everyone ideally will understand that these cutbacks are a vital strategy in the fight to ward off bankruptcy.

NEXT: Make Sure You Consider Bankruptcy Alternatives