Creating a Post-Bankruptcy Budget That Includes Your Auto Loan Payment

Filing for bankruptcy can feel like a fresh start–your debts are wiped clean and you have a chance to rebuild your financial life. But it’s important to be smart about your money going forward so you don’t end up back in debt. One of the keys is creating a solid budget that accounts for your expenses, including any new loans like an auto loan.

I know, budgets aren’t the most fun thing to think about. But having a budget is crucial for managing your money wisely after bankruptcy. So let’s walk through how to create a realistic post-bankruptcy budget that includes room for an auto loan payment. I’ll share plenty of tips to make it workable for your situation.

Assess Your Current Financial Situation

First things first–you need to get a clear picture of where your finances stand currently. Here are some key things to look at:

• Income: Add up all sources of income you receive each month–your job, side gig, child support, etc. Be realistic about the amounts.
• Fixed expenses: Make a list of all the regular monthly expenses that are the same each month–rent/mortgage, utilities, insurance, minimum loan payments, etc.
• Variable expenses: Now list out expenses that fluctuate each month–groceries, gas, dining out, entertainment, etc. Estimate monthly averages.
• Debts: Make a list of debts you still owe after bankruptcy, including amounts owed and minimum payments.
• Assets: List assets you own including home, vehicles, retirement accounts, etc. along with estimated values.

Having all this information in one place will give you a clear snapshot of your starting point for building your new budget.

Set Goals for Your Budget

Now that you know where you stand financially, it’s time to think about your goals for your post-bankruptcy budget. Ask yourself:

• What do I want to achieve or save up for in the coming months/years?
• How much can I realistically afford to put towards debt repayment and savings each month?
• How long will it take me to pay off remaining debts based on what I can afford?
• At what point can I consider taking on a new auto loan if I need a vehicle?

Having specific financial targets will help guide your budget decisions. Be honest with yourself about what is achievable so you set realistic goals.

Create Your Budget Framework

Time to start building out your monthly budget! Here are some tips for the process:

• Use a budget template or worksheet to organize your info. Apps like Mint or Excel templates work too.
• List all sources of income at the top, then fixed expenses, variable expenses, and debt payments below.
• For variable costs, be realistic about averages. Look back at past months’ spending if unsure.
• Build in some wiggle room for unexpected expenses that pop up.
• Aim to have income exceed total expenses so you have money to put towards goals.
• Set up separate savings accounts for short and long term goals to automate saving.

Having everything mapped out visually makes it easier to get a handle on your full financial picture and cash flow.

Look for Ways to Trim Spending

If your initial budget shows expenses exceeding income, look for areas where you may be able to cut back, such as:

• Downgrading cable/internet/phone plans
• Finding cheaper auto insurance rates
• Cutting back on dining out and entertainment
• Finding less expensive grocery options like Aldi
• Using coupons, rewards programs, buying generic brands
• Canceling unused subscriptions and memberships

Even small spending adjustments add up over time. Find ways to make smarter choices without depriving yourself too much.

Increase Your Income If Possible

In addition to decreasing expenses, are there ways for you to bring in more income? Things like:

• Asking for a raise at your job
• Finding a part-time job or side gig
• Starting an Etsy shop or other small business
• Renting out a room in your home
• Using credit card rewards programs

Even an extra $200-300 per month from a side job can make a difference in your budget’s bottom line. Get creative about generating more earnings.

Plan for Irregular Expenses

Don’t forget about those occasional expenses that don’t happen every month but still need to be budgeted for, like:

• Car maintenance and repairs
• Medical bills and copays
• Home repairs
• Gifts and holidays
• Vacations
• Car registration and taxes

Open a separate savings account and have a little transferred each month to cover these costs when they pop up so they don’t derail your budget.

Leave Room for Financial Flexibility

Life always has a way of throwing budget curveballs at us. Leave some wiggle room in your budget for the unexpected with line items like:

• Emergency fund – aim for $500-1000 to start
• Miscellaneous expenses
• Entertainment/fun money
• Clothing and personal care

Having some breathing room allows you to cover surprise expenses without going into debt. Over time, build up your emergency savings fund to 3-6 months’ worth of expenses.

Evaluate Wants vs. Needs for New Purchases

When considering any new purchases on credit after bankruptcy–especially a major one like a car–be sure to ask yourself:

• Is this something I truly NEED right now or just a WANT?
• Can I afford the monthly payment while also meeting my other goals?
• Is there a less expensive option that would meet my needs?
• Am I buying for emotional reasons or to impress others?

Carefully weigh how much you actually require the item versus simply wanting it. Don’t take on new debt lightly.

Shop Around for the Best Auto Loan Terms

Okay, you’ve determined a vehicle purchase is necessary. Now it’s time to get loan terms that work for your budget:

• Shop around with multiple lenders and compare interest rates
• Consider used vehicles to save money
• Put down as large a down payment as you can afford
• Opt for shorter loan terms (3 years better than 5)
• Make sure monthly payment fits comfortably in your budget

A little legwork upfront can potentially save you thousands over the loan’s duration. Don’t just accept the first offer.

Weigh the Benefits of Leasing vs. Buying

Should you lease or buy your next vehicle? Things to consider:

• Leasing pros: Lower monthly payments, drive a newer car more often, warranty coverage
• Leasing cons: Never build equity, fees for excess mileage, wear and tear
• Buying pros: Build equity as you pay down loan, no mileage limits, own car after paying off
• Buying cons: Higher monthly payments, responsible for repairs and maintenance

Crunch the numbers for both options and see which one truly saves you more money based on your driving needs.

Avoid Long Loan Terms

It can be tempting to stretch out your auto loan to 5, 6, or even 7 years to get lower payments. But this causes two big issues:

1. You’ll pay way more interest over the loan’s duration
2. You may end up “upside down” on the loan (owing more than car’s value) making it hard to sell if needed

Try to keep loan terms to 3 years or less. It will cost less in interest and allows you to build equity faster.

Don’t Overspend on Extras

When finalizing your auto purchase, watch out for extras that can ramp up the price:

• Avoid expensive add-ons like fancy stereo systems, leather seats, extended warranties
• Just say no to extras like rust-proofing, fabric protection, wheel locks
• Skip the expensive paint protection, door edge guards, etc.

These things provide little value but cost you big money over time. Focus on necessities.

Review and Revise Your Budget

Once you’ve set up your budget and started following it, be sure to:

• Review spending vs. budget at least every 1-2 months
• Make adjustments as needed for changing income or expenses
• Hold yourself accountable for sticking to plan
• Celebrate wins like being on track to pay off a debt

Consistently monitoring your budget is key for staying on a healthy financial path post-bankruptcy.

Get Help If You Need It

Creating and managing a budget on your own can be challenging. If you’re struggling, don’t be afraid to seek out help:

• Talk to a bankruptcy attorney for guidance
• Consult a non-profit credit counseling agency
• Take a personal finance course at a local community college
• Ask your bank for budgeting resources

You don’t have to figure it all out alone. Lean on experts to guide you.

The road to financial recovery after bankruptcy takes time and discipline. But by creating and sticking to a solid budget that accounts for your income, expenses, goals and new loans, you can get back on stable ground. Monitor your progress, make adjustments when needed, and celebrate small wins along the way. With commitment and patience, you’ll be back in the driver’s seat of your finances in no time!