Three Ways to Prevent Bankruptcy

| Jun 10, 2021 | Bankruptcy

We all get into financial binds every once in a while. Sometimes we just have to have the car that we see our friends driving around town. We buy it and then we find it hard to make the car payments. Or we need a new wardrobe for that new job, and we overspend at the store or online buying it. Or we see that perfect set of knives advertised on television to complete our dream kitchen and buy it without thinking if we can afford it.

One of the ways to get out of that financial bind is to file a bankruptcy. This article will give you suggestions on how to stay out of bankruptcy.

  1. Analyze Your Credit Card

Go through your credit card statement and analyze what things you need and what things you could live without. For example, you need food at the grocery store, your dry-cleaning service, and gas for your car.  You don’t need to buy all of the clothes, gadgets, and expensive food items. If you reduce your credit card bill, you help to stay within your budget.

  1. Cash Envelopes

Take your paycheck, cash it, and put the cash into envelopes. The envelopes can be:

  1. Rent or mortgage
  2. Utilities
  3. Food
  4. Clothing and dry-cleaning, detergent, etc.
  5. Personal care products such as deodorant and tooth paste
  6. Transportation, including car payments, gas, and maintenance
  7. Medical and dental expenses
  8. Insurance: home, auto, medical
  9. Charitable contributions
  10. Entertainment

Once you’ve spent the money you placed into that envelope, you don’t have it to spend. After a month or two of using the envelope system, you get used to your limits in each area. You can also see where you can save money and put it into a savings account.

  1. Reduce Services

The third way is to figure out how to reduce services. Think about what services you buy that you can do yourself and save money.

  1. Eating at home: save going out to restaurants for special occasions. Also, skip the meal-kit services, as they may be fun and tasty, but they cost a lot.
  2. Cut your own lawn: a one-time purchase of an inexpensive lawnmower will reduce your lawncare budget significantly. Remember that your lawnmower can also mow up leaves on your lawn in the fall. Cut other lawn services like fertilizer and weed killer—you can do this yourself with a few tools and a stop at Home Depot or Lowe’s.
  3. Clean your own house: you may prefer that someone else clean your toilets, but you will save significantly if you do it yourself.
  4. Buy fewer clothes, and if you do need something, you can find great items at second-hand shops and thrift stores.
  5. Read your news online: you may enjoy reading a newspaper that is delivered to your house daily, but you can save a bundle by cutting that service and reading the news online.
  6. Color your own hair: many of us ladies color our hair, but you can buy a box of hair color at the grocery store for $15 instead of spending $100-$200 at the hair salon and look just as beautiful.
  7. Keep your old car as long as you can. Be sure to keep it maintained with oil changes, etc. When you fret about that fee for repairing the old car, remember that that payment is much less than monthly payments for a new car. If you do absolutely need a new car, buy a used car as it will be significantly less than a new car and be just as reliable.

In addition to cutting your expenses to keep yourself out of bankruptcy, you do need some expenses to protect your assets—insurance and a savings account.

Insurance:

  1. Automobile insurance: you are required by law to have car insurance. There are many choices out there, so don’t be afraid to shop other carriers yearly to make sure you are getting the best deal.
  2. Life insurance: there are many inexpensive options for life insurance. Be sure to get funeral expenses covered. There are also two different types of life insurance, term and whole life. With term, you get the policy value when you die. With whole life, you can borrow against the premium, and the value increases over time.
  3. Health insurance: federal law has made it so that everyone has options. You may have health insurance through work. There are health savings accounts, long-term insurance, and other types of health insurance.
  4. Disability insurance: you may have disability insurance through your job, or you may get it on your own. It is important to make sure that you have income in case you have a healthcare issue that is lengthy and you use all of your sick leave, or you work for yourself and need to make sure you have some form of income coming in.

The last thing I will mention is probably the first thing you should think about, and that is saving. This means saving from your income to make sure you have money saved for unexpected downturns in your finances or savings for things that you want to buy in the future, like a house or a trip or a car or your kids’ college. The rule of thumb is to save at least 10% of your income. If that is not possible due to your expenses, at least put $100 into your savings account each month.  You will be surprised how it will add up, and you may need it someday.

If these three plans to keep you out of bankruptcy do not work, be sure to consult with a bankruptcy attorney.