Avoiding bankruptcy is a goal that many people strive toward. If you’ve reached a point where your finances are stretched thin and you’re unsure what to do, then bankruptcy may be a good solution for you. Like all things, however, bankruptcy isn’t for everyone. Before you decide to file, here the top 5 tips to avoid bankruptcy.
Create an emergency fund
An emergency fund is exactly that: a separate account with money set aside in case an emergency happens. Your emergency fund is used for unexpected bills such as a car repair or a doctor’s visit. It should be established before you start adding money to your regular savings account. Saving around $1000 is a good start. Once you have that you can work on lowering any debts you may have. As debt is eliminated, you should then try to fully fund your emergency fund with at least 3 to 6 months worth of expenses.
Establishing good saving habits
Opening a savings account and using it to save regularly is one of the first steps to creating good saving habits. A good rule of thumb to start is saving at least 10% of your income every paycheck. Most workplaces will allow you to make deposits directly into multiple bank accounts, including a separate savings account. Keeping your savings separate helps you establish a pattern of saving and makes it a bit harder to access the money set aside. If you’re tempted to use it, you’ll have to visit your bank to make a withdrawal.
Create a budget
A budget is a detailed list of the income and expenses of an individual. It usually includes a list of sources of income such as a salary, dividends, and interest, as well as a list of expenses such as rent, food, transportation, and loan payments. Having a budget doesn’t mean you don’t get to spend your money. It just means that everything is written out ahead of time showing where every dollar will be spent. It not only helps you understand what you have, but it also helps you know how much and when you use it. A good budget enables you to look into the future and adjust your spending to meet obligations as they mature.
Stop bad spending habits
- One of the best ways to break the bad spending habit is to pay using only cash. Don’t use debit or credit unless required. Using only cash can help prevent impulse spending.
- Start cooking at home and eating out less. Eating at restaurants, fast food joints, or getting home delivery may be convenient but it’s also a good way to blow your money. Making your meals at home help you conserve the money needed for other essentials. It’s ok to eat out on occasion but it should not be an everyday occurrence.
- Before you buy something, ask yourself if you need it. Many times the answer is no. If you are aware of the difference between a want and a need, you can save yourself a lot of money. For instance, if you’re on the fence about buying a new pair of running shoes and your old pair still work, it’s probably not a necessity to buy the new pair right away.
Sell unused household items
If you’re like most people, you have items in your home you no longer use (or want) yet can’t bring yourself to throw away. If you have items that you aren’t using, sell them. You’ll feel better and you’ll have more cash in hand. I’m not talking about books – I’m talking about the old vacuum you haven’t used since you bought a better one, the blender you bought when you thought you might start making more smoothies, the unused serving platters, and the pile of board games that you thought you might find the time to play again. The old saying, “One man’s trash is another man’s treasure,” is true. If you have things that you just aren’t using, sell them to someone else who can make use of them.
To summarize, the top 5 tips to avoid bankruptcy are, 1.) Create an emergency fund 2.) Establishing good saving habits 3.) Create a budget 4.) Stop bad spending habits 5.) Sell unused household items