If bankruptcy is one of the scariest “B” words in the English language, “Budgeting” may be the next scariest “B” word. No-one likes to make a budget, but a budget is a necessary first step before you decide whether or not you need to file bankruptcy in Canada. Here’s why:

Let’s take the case of John, a 40 year old Canadian, with $50,000 in credit card debt. He has no assets that he could sell to pay off his debts, so he’s thinking about going bankrupt. Is that the right decision for him? To answer that question we need to review John’s budget, and that’s why making a budget is the first step to deciding whether or not bankruptcy is the right option to deal with his debts.

John’s household budget will show how much he earns each month, and what he spends it on. Once John sees the money going in and out every month on a piece of paper, it may be possible for him to cut expenses to free up enough cash so that he doesn’t need to go bankrupt. If his budget shows that he doesn’t have enough money to pay all of his debts in full, he may still be able to afford a consumer proposal where he repays a portion of his debts.

So how do you make a budget? The easiest way is with a pencil and a piece of paper. Carry the paper and pencil with you, and write down everything you spend money on (even if it’s just a coffee, or a dollar in a parking meter). Save all of your receipts, and at the end of the month you can summarize your notes to see exactly where you spent your money.

Use an Excel spreadsheet to summarize your income and expenses. The attached spreadsheet is fully customizable, so you can add whatever categories you want. Add a new sheet for each month, and easily track your spending. With some discipline and effort, you will see where your money is going each month, and you can decide what expenses to cut to save money.

Start with a budget as the first step in evaluating your options. Once your budget is prepared, contact a local trustee for a free initial consultation to determine your next step.