Bankruptcy does not mean that you've hit rock bottom. It means that you've taken the first step toward financial stability and freedom. You're on the proverbial first rung of the ladder, but you are definitely on the way up.
The steps you take over the course of the next several months will dictate your financial future. If you don't change the circumstances or mindset that led to your bankruptcy, you may find yourself in similar circumstances once again. If you start taking small steps toward financial freedom, however, you will enjoy all the benefits of the fresh start that bankruptcy provides.
For a bright, secure financial future, implement the following strategies.
Create a Budget You Will and Can Follow
Before you can get a handle on your finances, you must know how much income you have and how you're spending it. This is where a budget proves to be invaluable. To create a budget, start tracking your expenses or pull your bank records to see what you're currently spending. Rather than using this as your final budget, use it as a starting point and adjust until you're spending an appropriate amount of money in each category.
How much should you spend each month on necessities? The answer will be different for everyone, but you should aim to spend less than 50 percent of your take-home pay on necessities. The remainder of your pay should go toward paying off your remaining debts, if any, and building a more secure financial future.
Make Saving Money Your Number One Priority
They key to financial freedom is to break the paycheck-to-paycheck cycle. There's only one way to do that: start saving money. Do not treat saving as an afterthought or save only what you have left over. You will always find uses for the money, and many of them will be quite valid. Instead, take your savings off the top before you pay any bills. Take out a set amount or percentage of each check and don't touch it for any reason.
Put Your Savings to Work
Get even more benefit from your savings by investing. Financial investments can take many forms, but start with something simple, like a certificate of deposit at your bank or credit union. The idea is to earn interest on your savings so the amount saved grows over time.
If you leave your savings alone and keep adding funds to the balance, the compound interest will add up nicely. For example, a certificate of deposit with a modest 2 percent return will double over the course of 35 years.
Continue to Pay Off Debt With On-Time Payments
Nothing impacts your credit score more than your payment history. For this reason, it is critical to make all your payments on time after bankruptcy. While it may take a while to see your score improve, you will move a little bit toward a better score with each on-time payment you make. Missing a payment, on the other hand, will have an immediate, drastic, and negative impact to your score.
Avoid Obtaining New Unnecessary Debt
Taking on a small amount of smart debt after bankruptcy can work in your favor, especially if bankruptcy wiped out all your debt. You must show you can make payments on time if you want to improve your credit standing. To do that, you must have payments to make.
However, credit can be a slippery slope. Do not take out multiple credit cards or overextend yourself when your credit starts rebounding. Instead, make smart credit decisions and keep your balances low.
As always, do research before making any major financial decisions. If you have questions about bankruptcy or how bankruptcy affects your financial future, W. Mack Rice, P.A. can help.