4 Ways To Never File Bankruptcy
A simple, step by step guide on how to remain financially secure so that you never have to consider filing bankruptcy.
Make And Follow A BudgetMy friend, Richard James, never stops reminding me, "Ronn, you have to know your numbers." What he means by that is, before I can financially move forward, I MUST get completely honest with myself in regards to my actual financial situation.
That begins with a budget.
It's not difficult. I take my monthly income (if it fluxuates, take a 6 month average), add up all of my monthly expenses, and subtract my expenses from my income. There. That number is my "discretionary" or "disposable" income. That is the total amount of money I can spend per month beyond my listed expenses. That's it.
If I want to buy an item which costs more than that amount, what do I do? Pull out a credit card? Nope. I have to save up my discretionary income over the course of a number of months. My budget, not me, decides how much "fun" spending I can do each month.
If I need more "fun money," what can I do? That's easy. Make more money, while keeping my expenses at the same amount or make the same amount of money, while finding ways to save on my expenses.
Rule: To never have to file bankruptcy, make the decision to let your budget decide your spending each month.
Use Credit CarefullyI find that credit cards are like fine wine and good chocolate. Used carefully, in moderation, they can have a positive effect on my life. Here's what I do:
IF I have one or more credit cards with a zero balance, it can be financially helpful for me to use the card once or twice each month. But here are the two keys: I ONLY purchase items from my expense list of my budget, and I ALWAYS pay off my credit card IN FULL every month.
Why use credit cards at all? Using credit cards in this manner gives me a fabulous credit score. And that score is very important, especially if I am going to get or refinance a mortgage, apply for a job that deals with financial matters, or purchase a larger item on credit.
Never use a credit card if it already has a balance on it. Never. Paying off that card should be in your budgeted "Expense" column, and you should be paying more than the minimum demanded.
Rule: Paying off credit cards with a balance and then using credit as I do is a simple step to never having to file bankruptcy.
Save For RetirementSaving for retirement is one of the easiest steps to take, especially if you are young. Here's the magic formula I've tried to practice religiously: Save 10% of my monthly income, each month, for retirement. An IRA is a simple investment tool that anyone can use.
If you saved $2,000 a year for retirement between the ages of 20 and 30, you'd be set for life, retiring with over a million dollars in your IRA.
Rule: Put 10% of your monthly income into a retirement account on a monthly basis. If you miss a month, no worries. Just put 20% in the next month.
Be A GiverThis is the most radical step I know to avoid bankruptcy. Be charitable. Ideally, I recommend my clients save 10% of their monthly income for retirement, give 10% of their monthly income away, and live on the remaining 80%. Sounds hard. But if you follow the first step and budget your savings and your giving, the budget will make it easy.
It's my experience and belief that what you reap you sow; that what comes around goes around; that givers get. I don't have a scientific explanation. I've just observed people over my lifetime. It's the generous people who seem to get the most, and the horders and selfish who hold on to the least.
If you actually cannot pay your expenses if you give 10% of your income away, try to give 5% or 3%. Even if that is not possible, then give 10% of your time away by volunteering somewhere that makes a difference in peoples' lives.
Rule: Be a giver. Try to give at least 10% of your income away.