How to get your finances back on track after bankruptcy

On Behalf of | Nov 12, 2018 | Bankruptcy |

When you initially filed for bankruptcy, you may have felt like you failed at life. Now that you are on the other side of your debt, you have probably realized that filing for bankruptcy can be a good thing. You have a fresh start, and a new opportunity to correct past financial mistakes.

Here is what you need to know about getting your finances back on track after filing for bankruptcy.

Go over your old budget

More than likely, some bad budgeting might have contributed to your bankruptcy filing. Maybe you did not have enough money in your savings, or you simply had too many outgoing expenses. Money Crashers recommends you break your budget into three categories: fixed, variable and irregular expenses.

Your fixed expenses include things like your mortgage, insurance and car payment. Variable expenses are what you spend on clothing, food and entertainment. Irregular expenses include things like car repairs, medical bills, gifts and home repairs. It may be tough to gauge variable and irregular numbers, so look through old bank statements to come up with these numbers.

Figure out a savings goal

Not having enough money in your savings account often pushes people toward debt. To get your finances back on track, you need to start saving more money for a rainy day. Come up with a percentage of your income that you want to save. Experts recommend you save at least 10 percent of your income.

Now that you have a number in mind, you need to go over your expenses. Can you cut money from the fixed expense column, like getting a cheaper cable or internet package? Or maybe you are spending too much money on groceries? Cut money from your budget until you have enough money to set aside for your savings goal.

Set up an out-of-the-way savings account

You probably already have a savings account at your bank. However, it is likely attached to your checking account and much too easy to access. Consider setting up an account at a different bank, so you will be less tempted to withdraw money from it. Set up an automatic transfer into this account, so you do not even have to think about moving the money.

Consider going all cash

Credit cards are a big problem for many consumers, and even debit cards can make spending money way too easy. For the first few months after bankruptcy, use an envelope system for spending. You can still use automated payments for things like your mortgage and car payment. However, for expenses like groceries and entertainment, place your monthly or bi-weekly budget into an envelope and then only use cash to pay for these things. It will keep you from overspending and teach you to live within your means.

Transition back into cards

After three months have passed, evaluate how you are doing on spending. If you feel like you have learned how to budget well, maybe it is time to start using your debit card again. You could also start out slowly and only use your debit card for one category, like food. At the end of the month, compare your spending to the previous month. If your spending skyrocketed, you still need to work on your budgeting. Try going another month just using your debit card for food. As your budgeting improves, start using your debit card for more purchases.

Learning how to become financially responsible can be hard to do. However, if you set goals, slash expenses and learn how to budget, you can get your finances on track after a bankruptcy.

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