Many areas that debt help agencies will advise you to focus and spend your money on should be common sense. Living necessities such as food, a place to live, electricity and water bills (basic utilities), and serviceable clothing should receive the greatest amount of attention. Other things such as owning a phone and making medical appointments are also stressed to varying degrees; if you need a phone for your job or a car for work, a debt help agency will give you advice on making a space for them in your budget.
These basic living expenses need to be considered by any person who is beginning the process of declaring bankruptcy, by anyone in debt, and by people who want to avoid being in debt. When you reach a debt settlement agreement and draw up a payment plan, it is necessary to know what your living expenses are. Most credit agencies will only ask you for a general estimate, but it is good to know what you will need to budget and keep making payments on in order to survive and/or work. Also, your lawyer and debt help agency will provide you with support and advice on the subject – it is their job to do so.
The following is a list of IRS approved living expenses taken from shepleylaw.com:
- "Electricity
- Trash
- Sew/Water/Septic
- Gas (Home)/Oil
- Phone
- Cell
- Internet
- Food/Groceries
- [Basic]Cable
- Dining Out [on rare occasions]
- Work/School Lunch
- Entertainment
- Clothing
- Health Insurance
- Doctors Co-Pay
- Medications
- Medical Equipment
- Dental Insurance
- Dental Co-Pay
- Veterinary
- Clubs, Sports & Hobbies
- Life Insurance
- Car Insurance
- Gasoline
- Auto Expenses
- Taxi/Parking/Public/Transportation Contribution
- Child Support
- Child Care
- Tuition/School Fees
- Business Expenses/Union Dues
- Beauty/Barber/Nails/Dry Cleaning
- Other (Holidays, Birthday, Cigarettes, etc.)"
While some of the items on this list (such as Beauty and Entertainment) should be done only very rarely, the list should give you a good idea of the areas where you should be spending your budgeted money. Living in debt is hard, frustrating, and difficult but it does not have to be the end. Draw up a list, get something done, and talk to a debt help professional. You might have more resources at your disposal than you thought.
Linked Sites:
Shepleylaw.com post on approved living expenses for people in bankruptcy: Linked Site
2009 IRS Medical and Dental Expenses PDF
2009 IRS Moving Expenses PDF
EBPA post on IRS Eligible Expenses PDF
Some of the items on this list could probably be cut from your budget until you paid down a significant amount of debt. When reviewing budgets with clients, I also recommend cutting down on eating out and entertainment first. Then, look at the other categories. This is where most people tend to spend the most money.
ReplyDeleteThank you for your comment! It was well written and engaging, and you brought up a point that I would like to clarify. As I mentioned in the post, certain items on the list (i.e., eating out, cable, hobbies, entertainment, beauty trips, and my “other” section) should be done rarely and infrequently - in other words, they are activities that should be done once in a blue moon. However, I also believe that it is important to not let debt control your life. You should cut back heavily in non-essential spending, but a movie night in your home once a week or a trip to the movies with your loved one or friends once every few months can help a person who is struggling with debt to keep their spirit up and their head in the game. Debt is a critical and difficult situation to be in, but it should not be the end of your life.
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