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People wind up in tricky financial situations due to all kinds of reasons: a medical emergency can occur, the financial markets can crash, a natural disaster strikes… there are many roads that can lead to bankruptcy. Not all of them have to do with wild spending and a lack of common fiscal sense.
But what can help pretty much everybody – and definitely everybody recovering from bankruptcy – is a well-planned personal budget. This is more than a spreadsheet with one column with your monthly income and another column for your monthly bills and a hope the numbers are black by the end of the month.
A good budget allows you to track expenses, includes everything from changes to your credit score to changes in the interest on your credit card, and gives you a firm look at the road ahead out of bankruptcy.
A budget, in short, is simply a window into your finances. It’s more than a flow chart, it’s a frame of mind. And if you keep your budget neat and tidy, the process of rebuilding from a bankruptcy is going to be easier.
It will help you plan for your future and realize it. Don’t give up on your dreams!
If you see your bankruptcy as a business decision you were backed into, having a budget can make the problem much easier to tackle and can clear your conscience of any false guilt you may be experiencing.
It may not make time move any faster, but your recovery from bankruptcy is almost guaranteed to be less stressful with a plan in place.
Why You Need a Budget After Bankruptcy
Even if it wasn’t a wild spending spree that led you to declare bankruptcy, it’s going to be a difficult road to rebuild your credit. A good basic mindset to adopt when you’re starting from a clean financial slate is to make a personal rule that you will never miss a payment.
That means even if you have a sudden loss of income, you can still comfortably cover at least two months’ worth of bills. Yes, that may mean scaling back on your lifestyle in many areas (and perhaps cutting some entertainment items or so-called necessities entirely) but remember, you’re rebuilding from a bankruptcy and while it can seem a slow process, it’s only temporary.
Meeting the Due Dates
It’s no exaggeration to say that even one late payment can have a disastrous ripple effect on any progress you’ve already made in rebuilding your credit. Even if you have a legitimate emergency as to why your payment is late, lenders will be much less forgiving and understanding.
Yes, they are human, too… but only up to a point. They’re in the business of loaning money and earning interest; that’s how they work. Without paying them interest, you’re really just wasting their time.
For someone who has already been through a bankruptcy, what lenders want to see is a person who has matured, someone who has taken responsibility for their financial situation even if it is not 100% their fault. The only way to demonstrate that is to make all payments in full and on time.
And the best way to do that is to create a budget… and stick to it.
Keeping an Eye on Expenses
The last thing you want in your credit history after a bankruptcy is another bankruptcy. Unfortunately, that can easily become the case if you’re not vigilant about your spending. Remember that almost everything involving money in your life is going to have to be scrutinized. Be honest with yourself about what makes you truly happy and what you just spend money on to pass the time.
That’s not to say you need to embrace a minimalistic lifestyle and spend the rest of your life shopping in thrift stores…far from it. But if you love shopping (and really, who doesn’t?) and content yourself with small trips to the store for small and inexpensive items you don’t really need, keep the receipts and tally a month’s total.
A couple of $20 trips to the store a week for inconsequential things for the house can quickly add up to the equivalent of a monthly utility bill. Which would you rather be able to afford, hot water or a fancy new $5 spaghetti strainer?
Here’s an exercise you should try if you’re truly serious about your financial health: for at least one month, write down every penny you spend.
Whether it’s your $200 electric bill or the $3.25 you spent on a coffee on your way into work, write it down. Because until you have a crystal-clear view of exactly how much you spend, it will be hard to identify where you need to stop spending and where your money can really be useful in building your credit back up.
A Word About Credit Cards After Bankruptcy
While applying for and holding a secured credit card after bankruptcy is one of the easiest and fastest ways to rebuild your credit, you should think of it less as a credit card and more like a prepaid debit card you pay interest on.
Whether or not credit cards played a role in your bankruptcy in the first place is beside the point; if you find yourself depending on those credit cards to make ends meet, that’s a major red flag you’re misusing it already.
Life happens, incomes can dry up overnight, and that credit card bill is still going to be waiting for you at the end of the month. If you can’t make that payment, by all means call your bank or credit card company and explain your situation. Just don’t expect any leniency from them.
After all, they took a chance on you (albeit a small one; with a secured credit card, they only lose the interest) and you showed that one bankruptcy still isn’t enough to make you take your finances seriously. Again, that may be a mile from the truth. But in their eyes, all they know is you don’t have their money.
So how to use a secured credit card smart? Very simple. One of the best (if not the best) ways to use your secured card is to set it up with auto-pay online and link it to a small, recurring monthly bill (phone, gym membership, that new streaming service after you cut cable).
And then only use it for that, nothing else. In fact, don’t even keep the card in your wallet, keep it at home somewhere safe. Using your card this way means the bill automatically gets paid, your card is active and building up your credit, and the temptation to stretch your resources is removed.
Getting Used to a Clean Slate
Despite the particulars, it’s a safe bet that if you had budgeted better in the beginning you probably never would have been forced into your current financial situation.
It’s one of the reasons people declare bankruptcy every day in this country: expenses can easily get out of hand because we live in an expensive society.
But if you’re armed with a clear budget and one that makes sense to you, money becomes much more easy to manage.
Starting with a simple flow chart showing money coming in and money going out, and including incidental expenses, a budget is something to constantly build upon and expand alongside your growing credit. At a moment’s glance, it should tell you exactly where you stand financially-speaking.
There’s a great deal of peace and confidence that comes along with this knowledge and making it a physical document or spreadsheet will only strengthen your positive outlook and your handle on your financial life.
Using Your Budget as a Launching Pad for Your Dreams
Attitude can be everything when it comes to bankruptcy. The trick is to realize that “giving up” is not an option and it’s not what you did when you declared bankruptcy. You got knocked down once, fine. Lots of people do.
But what will come to define you will not be the line on your credit report for that reads “Bankruptcy”, it will be the work you do in the years following to recover and rebuild.
After all, you have a clean slate and should be almost (if not completely) debt-free. Now is the perfect time to start doing what you should have been doing all along: namely, saving.
Indeed, if there is one “trick” to recovering from a bankruptcy fast, it is to save as much money as possible. For those with responsibilities, such as a family, this is often much easier said than done.
And that is exactly how a comprehensive personal budget can become an indispensable tool in rebuilding for your future after a bankruptcy. Rebuilding after a bankruptcy does not have to be complicated or hard. What it does take is patience, vigilance, and common sense. A good budget can do all that and more.
Make room in your budget for the things you want or will need in the future, large purchases such as a car or house. Yes, it is possible to buy a car after bankruptcy and even buy a house after bankruptcy. Getting approved for one of these loans will take time, but in that time you can be busy working towards those goals. You may not be able to afford that Maserati anytime soon, but there’s nothing wrong with a modest car for the time being.
Getting Help With Your Budget After Bankruptcy
If the idea of drawing up a personal budget is foreign to you, not to worry! There are plenty of resources available to you, the first and most common being credit repair companies.
These companies mainly specialize in monitoring your credit reports and handling disputes with the credit bureaus, but many of them also offer financial counseling services, including budgeting. It varies from company to company (and from package to package within each company) so be sure to do your homework before hiring one of these companies.
If financial counseling is one of the services you anticipate using, be sure they tell you that explicitly, so you avoid any additional services fee.
Non-profit credit counseling organizations also exist, but be aware that just because they are non-profit, they’re not free. You can expect lower fees than a credit repair company, however, and if what you truly need is just some financial counseling, they could be the perfect fit for your situation and future plans.
Talking to a regular financial planner can also be a great way to learn how successful people budget their money (and it’s a safe bet that most successful people follow a careful personal budget). Don’t expect them to be as well-versed in bankruptcy matters as a company that specializes in them, but they can be an invaluable resource while you plan the next chapter of your life, one where the burden of a bankruptcy has been lifted, your money is secure, and your budgetary roadmap to fiscal prosperity becomes reality.