A Good Budget Can Save You from Insolvency

A person who is insolvent doesn’t have enough assets to cover his debts. At times people are unable to repay the debt due to some fiscal crisis and adopt innumerable measures to come out of this debt trap.

You can avoid insolvency if you keep on analyzing your budget and the flow of cash. This can warn you before you land yourself in a financial catastrophe.

Budget

This article would help you to reduce the risk of insolvency and help you to prepare a budget that would help you to avoid all kinds of financial crisis.

Budgeting would help to manage your finance:

  1. Prepare a list of the current expenses:
  2. Make a list of your expenses this would help you to get a vivid picture of your position in the financial ladder Try to maintain a spread sheet and incorporate all your daily expenses like you medical bills, rents and mortgage payments, clothing expenses, food, entertainment, your credit card debts and other related loans.

  3. Make a proper list of the source of income:
  4. The income that is stable and reliable should be shown as your only source of income. Try not to include the overtime and bonuses while showing your source of income as these are not part of your steady income, it can be reduced any moment. Other consistent source of income like spouse’s income, the money you get from renting your room or garage can be incorporated in the source of income group.

  5. Determine if there is a deficit or opulence:
  6. If you find that your income is less than your expenditure then your income is not sufficient enough for you life style. If you want to avoid insolvency then increase your source of income or curtail on your expenses. When your financial burden exceeds your income then you are insolvent.

  7. Different ways to save money:
  8. Study your basic expenditure pattern and try to figure out which are the things you would compromise on to lower your expenses. If you are not too fond of watching television then lower the cable package from deluxe to the basic. Try to trace the unnecessary investment like; if your car has completed three years without a scratch on its body then paying for the auto collision insurance would be a wait only pay for the liability coverage. If you merge your home owner’s insurance and car coverage together then you can attain the advantage of a discount. There are many insurance companies who would be willing to reduce the premium if they find alarms, air bags and other safety features are attached to your car.

  9. Open a savings account:
  10. Every month keep aside certain stipulated amount and put them into your savings account. Try not to take out this money from your savings account. You can fetch more interest on the savings account compared to the checking account. If you are thinking of a long term saving then look for plans that that would fetch you higher interest options like CD’s or money –market accounts.

  11. Avoid using credit card:
  12. Try to avoid the use of credit card as it tempts you to spend more. When you pay by cash you have a fair idea about the amount you are spending. You tend to develop an over spending habit when you use the plastic card. While using cash when you find that you are running short of money then you can immediately restrain yourself from over spending.If you manage your budget then you can avoid insolvency. Don’t be careless on spending as it can take a toll on your pocket and make you land in the pool of debts. In order to get yourself out of this debt trap you might think of filing for bankruptcy. But it would be a wrong choice as it would ruin your credit record as well as confiscate all your assets in order to repay your debtors. So the best solution to avoid debt is to be proactive and start saving.

This is a guest post from Kevin Craig. He is financial writer of Oak View Law group. He helps the people providing the peorper guidelines to make a good budget to avoid insolvency.

Photo credit: eric731

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2 Responses to “A Good Budget Can Save You from Insolvency”

  1. benjamin bankruptcy |  Jul 14, 2010 at 11:19 pm

    I just had this kind of realisaation myself. I’ve just don’t a budget and found out I’m $7 short a week. Time to get out the razor gang.