You may find it hard to believe, but bankruptcy is not all that bad. There are many positives to this scenario, like elimination of debt completely or at least partially. Also, filing for bankruptcy can leave you with many valuable life lessons regarding finances. Here are some of the things your bankruptcy can teach you:
1. Every Little Expense Counts
Bankruptcy is just the disappointing climax to an extended saga of being in debt. Most average people go into debt because of compulsive buying habits. When you buy a new pair of Jimmy Choos, you may not see bankruptcy filings in your future. But that’s where it can ultimately lead. So, learn to spend your money very, very wisely.
2. Bankruptcy does not Equal being Broke
Being broke means you don’t have cash at hand to pay for your everyday needs, be it food or the mortgage bills. Bankruptcy simply means you don’t have the financial resources to pay your creditors. Your money could be tied up in property or stock. However, you will still have cash to meet up with everyday needs. And you should do so smartly to avoid being genuinely broke, which is what debt can lead to.
3. Documenting Finances is Very Important
If you have filed for bankruptcy, then you’d know how important it is to document every single expense, even the small ones. Documenting your expenses obsessively is not a bad thing. It will help you understand how much you need to spend each month. This is the first big step towards better money management.
4. Starting a Business Just for the Sake of Starting a Business is Bad
Most people go bankrupt because of bad business decisions. These days you hear all sorts of talk about starting businesses on the side to make extra cash. Starting a business is easy, but running one isn’t. Just because you love eating, you shouldn’t open a restaurant. So, if bankruptcy teaches anything, it will teach you how to invest your money in better business.
5. Be Cautious of “High Return” Investments
A surprising number of bankruptcies is filed each year because someone lost all their money to so-called high-return investments. High return investments are also highly risky. Most people do not consider this when they buy certain type of stock or put money into a business. Do not let the returns overshadow the risk of any business. If an investment sounds too good to be true, assume that it is.
6. Diversification of Investments is Very Important
If you invest regularly, do diversify your investment portfolio. As the common saying goes, don’t put all your eggs in one basket. This has been the cause of a number of infamous bankruptcies in the past hundred years. When you invest, make sure your money is in different industries, like stock, property and precious metals.
7. Hardships Occur During Unexpected Times
It’s easy to see on the bright side of investments and new businesses until you have to call up BLG bankruptcy. You must consider the worst outcome for all the financial decisions you make and prepare yourself accordingly. This may sound too macabre, but it’s a necessity to avoid financial calamity. Do not assume everything is going to work out. Estimate costs and expenses wisely, and you must have savings to cover for any losses incurred by investments or business.
8. Financial Education is not Just a Fancy Term
Lack of financial understanding is the main cause of debt, and later situations like bankruptcy. Financial illiteracy is more widespread than you think. It can affect the average Joe as well as a celebrity alike. Only about 40 percent of Americans can be considered financially literate, according to data gathered by FINRA. You could easily fall into the rest of the 60 percent. So, start today to educate yourself about personal finance before it’s too late.
9. Maintaining a Household Budget May Save Your Financial Life
Do not look at maintaining a household budget as a hassle. It’s relatively simple to do; you just have to note down the money you make each month, money you spend and the money you save. Doing so will prevent you from ending up nose deep in debt.
10. Everyone Must Plan for Their Future
Always assume that money can run out, no matter your income potential. That’s why financial advisors cannot stress the importance of having a plan for the future. The easiest way to plan your money for the next 5 years is to save. You need emergency savings as well as long-term savings for retirement. Savings will prevent you from having to take out short-term personal loans, a major cause of personal bankruptcy.
If you learn all the above lessons by heart, then you will be able to avoid bankruptcy in the future. Learn from your mistakes. If you do, like Will Smith or even Donald Trump, your future finances will look brighter than yesterday’s.