“How do I recover from bankruptcy?” This question comes up in every new client interview or client meeting that I conduct. There is no no universal answer to this question, but here are a few thoughts:
- Become a more educated consumer. Bad financial decisions often lead to debt problems that can overwhelm you, thereby leading to a bankruptcy filing. If you are filing or if you are close to filing, take a few minutes to step back and think about how you ended up in your financial predicament. What would you have done differently? Moving forward take advantage of the financial resources on the Internet, most of which are free. Examples of helpful sites include
NADA – shows car prices
Bankrate.com – comprehensive financial resource
The Motley Fool – easy to understand investment advice
Clark Howard’s web site – consumer guru Clark Howard offers advice about living on the chap and avoiding ripoffs. - Resolve to cut your overhead. Start by creating a household budget. Include a “rainy day” saving account in your budget and avoid major purchases that strain your budget. Obviously, houses and car purchases are the two biggest areas that you can control. Work towards a goal of having a paid off car and a paid off house. Monthly overhead that you cannot change will eat you up, both financially and mentally.
- Avoid unnecessary purchases and learn to spot sales pitches. Good salespeople train themselves to sell to you by allowing you to convince yourself to make a purchase. A very useful book that describes many of these techniques is called Influence by a social psychologist named Robert Cialdini. If you understand how you are being influenced you may be less likely to fall prey to sales pitches for unnecessary purchases. Some of the types of unneeded purchases that I see a lot in bankruptcy court include:
- time shares – almost always a bad deal
- large furniture purchases – if you are on a budget, you will pay 10 cents on the dollar for used furniture
- fancy vacuum cleaners – almost always a wasteful purchase
- expensive new computers – if you use your computer for school homework or to email, a one or two year old computer will serve your purchases. You will pay $200 to $300 instead of $1,500 to $2,000
- big screen televisions – personally, I watch very little television – perhaps a baseball or football game on occasion and the news every once in a while. My children are only allow to watch tv on weekends. Most successful people I know watch very little television. If you find yourself watching hour after hour during the week, consider alternatives like reading a book, taking a walk or finding a part time job. There is nothing positive that will happen in your financial life if you watch four or five hours of TV every day
Got any other ideas or helpful resources? Let me know.