4 Important lessons to Learn from Bankruptcy
Bankruptcy is a legal term that describes a person or business that cannot honor its debt obligations. While
admitting that you are truly in debt may sound scary, it gives you another chance to start afresh. In reality,
the worst thing is to go through the process and not learn anything. Here are 4 important lessons to learn
from bankruptcy.
1.Always plan for future
The best way to prepare for a rainy day is to have an income generating business. Most people who file for
bankruptcy have no retirement account or a safety net in case they lose their jobs. And by the time the
problem is diagnosed, it can be too late to fix it. This makes them hopeless when they think about their
financial prospects. While more income can temp you into more spending, it’s prudent that you set some
cash aside for the unforeseen future.
Don’t get me wrong, you’re not supposed to put all your money in one investment plan – you may fall from
grace to grass. Even if you have a steady paycheck, always plan for the worst case scenario. In life, you
should have a backup plan for almost everything. It’s the best way of easing the stress about the future.
2. Never discuss your income in public
Money is a fickle thing, so when you’re open about your earnings you’ll attract the wrong crowd. When you
talk about your income it may appear as if you’re bragging which can shift relationships irreparably.
Remember, these are the same people you go to when you’re in debts. That being said, the only person you
should be open about your earnings is the banker. To save yourself from an awkward situation in the future,
never discuss your finances in public.
3. Credit cards are dangerous but an important part of life
There is a growing body of evidence that shows there’s a correlation between bankruptcy and credit cards.
This does not mean you should stop using credit cards. The biggest question is, how disciplined are you?
We’ve heard people who swear never to use credit cards again when they are in debt. But, once they pay
their debts they go back to the old habits. When used correctly, a credit card can help to build your credit
score. A general rule of thumb is to use what you can manage each month.
4. Live within your means
If you have an unsustainable lifestyle, the recklessness spending will catch up with you. Living within your
means is a healthy way of keeping debts at bay. For many of us, it’s easier said than done. According to
financial experts, we should always spend less money than we bring in. A budget will help you plan your
expenses and most importantly keep your spending on track. Sometimes, it can be tedious to budget your
money when you’re in a stressful financial situation. Try backward budgeting by writing down all your
monthly expenses.
Check your spending habits to ensure you’re not spending more than you earn. It’s important that you
review the budget on a monthly basis just to be sure you have some savings.
Final thoughts
Even when you earn a lot of money, be careful about the investment opportunities you take. Most of us
would be tempted to do impulse buying which leads to greater financial crisis. Bankruptcy is not for the
filthy rich; it can affect anyone irrespective of their social status. If you find yourself in a financial situation
you cannot handle, it’s important that you seek professional help.