'Intuitive finance' plan can stave off bankruptcy The Bankruptcy Adviser by Justin Harelik • Bankrate.com

Dear Bankruptcy Adviser,
I am in wholesale mortgage sales and just started. I have about $40,000 unsecured debt plus a $2,400 mortgage and $1,000 in car payments. It is hard to predict my income month to month. I only get paid once a month also. The company I am with is up and coming and I love what I do. Two questions: How can you plan budgeting when you don't know your income? Second, do you think bankruptcy and foreclosure is the answer? We are not 30 days late on anything yet, but it is just around the corner.
-- Edward

Dear Edward,
Dealing with fluctuating income is one of the most difficult problems individuals face when deciding whether bankruptcy is their best option. Some of my clients have hired me, paid the necessary fees and then days before filing received a large commission check. As a result, either they no longer qualify for the Chapter 7 bankruptcy and must declare Chapter 13 or do not file for bankruptcy at all.

Now, there are worse things than not needing to file bankruptcy by virtue of having too much cash on hand. Ironically, in your case it could be worse if you were granted bankruptcy. Why? Well, you've just started with a new company. Typically, it can take some time to get into the black. As well, in your industry, as you point out, income is unpredictable. It could take you a year or two to save up enough to be in a position to ride out the lean times comfortably. Therefore, you might need access to credit -- and if you've filed bankruptcy, credit may be very hard to come by.

The best plan, Edward, is to figure out how to ride this out. Certainly there are lawyers who will try to convince you that bankruptcy is your best option, but I disagree. Access to credit is important for people in unpredictable lines of work.

You asked the question: How one can budget with an unpredictable income? This is a good question, and over the years I've come up with an answer that works for people whether their income is predictable or not. Simply, you must stop thinking about yourself as a business and start developing your personal financial intuition. I call this approach "intuitive finance."

I consider the word, "budget," to be a term exclusively for businesses, not individuals. As important as money is, your life is not only about the bottom line. It's also about experiences, memories and enjoyment. This is why having a good time is so essential to an individual, because it reminds us that it is good to be alive and protects our sanity.

The basics of 'intuitive finance':

• Instead of a "budget," you have a spending plan. This is a plan to maximize the enjoyment you get out of your money. • Instead of "fixed expenses," you have commitments. This reflects that you have legally committed to making payments of the same amount every month, that is, your mortgage, car payment, cable, phone and cell phone bills. • Instead of "variable expenses," you have essentials. This means that gas and groceries, as well as dinners out and going to the movies. All of these things are essential to your life.

In brief, the intuitive finance method has two phases. In phase one, we gather information. For one month: a) only pay your credit card minimums and b) keep track of everything you spend in a little book that you can carry around with you (other programs also recommend this). Many people resist this phase, Edward, because they think they already know what they spend money on, and without fail, everyone who tries this experiences some discomfort initially and then makes an intuitive breakthrough. A similar technique is used to help people achieve weight loss by keeping a food journal for one month to help them discover where all of the calories are coming from.

If you can't make it through the month, even with only paying your minimums, then we know that it's time to look into bankruptcy. That's valuable information to have. If you can make it through, that's great! Either way, we move on to phase two, which is helpful to all of my clients, whether they are on a payment plan or not, because it helps them develop the intuition that lets them save money without spending time "bean-counting."

In phase two, we automate your commitments, using automatic withdrawal and online banking. Once your bills are being paid automatically, you have more psychological energy to focus exclusively on your essentials. For example, suppose your bare-bones monthly expenses for your entire family total around $6,000. It's hard to make $6,000 stretch to cover everything over the course of a month. It's easier to automate the payment of $4,000 for your commitments, and, with $2,000 left and four weeks to get through, to spend $500 a week on everything else, i.e., your essentials.

I know that's a lot to think about, Edward, and I expand on these topics in depth with my clients. However, the basic principle you need to remember is this: You need time and time will cost your money. If you are willing to keep track of your expenses you can know whether bankruptcy is the right option for you. Good luck and hang in there. You're fighting the good fight.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser, go to the "Ask the Experts" page and select "bankruptcy" as the topic.