The Short Answer
A balanced budget after bankruptcy means two things: your income exceeds your expenses, and your lifestyle is sustainable enough that you'll actually stick to it. Start by comparing your realistic monthly income against your honest monthly expenses. If you're in the red, your two levers are increasing income or cutting expenses — and cutting is usually more actionable. The goal isn't austerity; it's a plan you can live with long-term.
Step #3: Create a Balanced Budget
So far we have discussed the importance of getting accurate information for determining your income by reviewing at least the last several months of paystubs and we have discussed the incredibly important task of getting a “financially honest” expense report. The next step in putting together a successful budget after filing bankruptcy is putting it all together to create a balanced budget.
Step #1: Determine Your Average Monthly Income
Step #2: Know Your Expenses
Step #3: Create a Balanced Budget
Step #4: Review Your Budget Regularly
Step #5: Use a Technology to Help You
Positive Cash Flow
The first thing to look at is whether or not you have a surplus of money or if you are “in the red” and have a negative amount of money left over each month. If you have extra money left over each month then that is a good problem to have. I would encourage you to look back over your expenses and make sure that you are using realistic numbers. If you have a budget based on realistic expenses, then have you begun to put money aside in an emergency fund? Retirement? Saving for your children’s education? There is a long list of things that you can always be putting your surplus money towards. Doing so ensures that you become financially stable and secure.
Negative Cash Flow
If you have a negative amount of money then tough decisions are ahead. If you are in the red then you have two choices – you can increase your income or decrease your expenses. Unfortunately, your ability to increase your income is most likely limited. Therefore, look to your expenses. Some of the most common money pits for people are food and entertainment. Look to see if you are eating out too much. Or maybe you’re going to see too many movies? (It’s insane what it costs to go see a non-matinee movie nowadays!) Start chipping away at your expenses until you have a positive cash flow each month.
The “Balanced” Budget
The core of this blog post is to have a “balanced” budget. That term has a couple different meanings. First, we want your budget to be balanced in the sense that we want your income to be greater than your expenses. We hope you will have a positive cash flow.
Also, we want your budget to be balanced in the sense that you shouldn’t cut everything out of your budget that isn’t a necessity. Instead, you need to go to the movies every once in a while. It’s important that you go out to dinner. Your kids should be involved with athletics. Your budget is going to mirror your lifestyle. You can have a huge cash flow each month but if you are miserable because you don’t have any extracurricular activities then you will quickly burnout and abandon your budget. In other words, have a life! On the other hand, if you plan for these extracurricular events but ensure that you do so within your budget then you are more likely to lead a more balanced life, which will greatly increase your chances of following your budget.
Key Takeaways
- Check for positive cash flow first — if money is left over each month, direct it toward an emergency fund, retirement, or savings before lifestyle upgrades.
- If your expenses exceed your income, look hardest at food and entertainment, which are the most common areas where spending quietly spirals out of control.
- A budget that eliminates every non-essential will burn you out quickly — build in reasonable spending on dining, activities, and your kids so the plan stays realistic.
- Surplus money sitting without a purpose tends to get spent; give every extra dollar a job, whether that's savings, debt payoff, or a specific goal.
- Budgeting after bankruptcy isn't about punishment — it's about building the financial stability that keeps you from ever needing to file again.
Attorney Insight
The mistake I see most often is clients who build a budget around perfect behavior — no dining out, no entertainment, nothing fun — and then abandon it within two months because it's miserable to live by. After nearly 30 years of doing this, I can tell you that the people who rebuild successfully aren't the ones who cut the most; they're the ones who build a plan they can actually follow. A rigid, joyless budget is just a different kind of financial crisis waiting to happen. Build in the movie, the dinner out, the kids' soccer league — then hold the line on everything else.
