To me, bankruptcy is really a two-part financial recovery process. The first part, of course, is the bankruptcy itself. This is where you file your petition and all of your dischargeable debts get eliminated.
The second part of the financial recovery process is changing your habits to avoid a second bankruptcy and to assure yourself a more secure financial future. Once your debts have been discharged, it’s time to start thinking about building your savings. The following three things will start you on your way to a more secure financial future.
- Increase Your Retirement Fund or Start One: Whether you have a 401(k) or fund an IRA, use some of the money that you were using to pay your credit card companies to bump up your contribution. You’ll be surprised by how little you’ll notice a contribution to your 401(k), since it’s automatically deducted from your paycheck. Some employers will also provide a match to your contribution, giving you even more savings.
- Build a Long-Term Savings Account: Ever heard the saying, “pay yourself first?” This is where you put it into action. Aim for putting 10% of your take home pay into a savings account. Set your checking account to automatically make the transfer every month. Once you have enough to fund a Certificate of Deposit (CD), you can start earning even higher interest returns.
- Create an Emergency Fund: This is one of your best hedges against unexpected events. A good rule of thumb is to have six months of living expenses set aside. If you become sick or unemployed this will help you avoid having to rely on credit cards or loans to make ends meet during hard times.
Financial recovery is a journey. While bankruptcy will give you immediate relief, it’s going to take more work to get where you want to be. These are just a few tips. If you have children, you may have to adjust your plan to provide for college savings. If you can’t put money aside every month, don’t be hard on yourself. I would rather see you relying on savings to make ends meet than credit cards.
