It has long been said that most Americans live a paycheck or two from bankruptcy, and over the past ten or more years a lot of us have lost paychecks. Financial problems seem to cumulate, too, as losing a job has been made much tougher by falling housing prices or other setbacks. So how do you rebuild after financial disaster? You may never get back the life you had, but you may be able to do better as you rebuild your finances and your credit over time.
To make sure you have enough money to rebuild your financial life, figure out what your expenses are every month. Examine the following expenses:
These items are all necessary, of course, but you can keep them to a minimum. Focus on quality of life rather than possessions. You will be surprised at all the frivolous things you spend money on and once you cut them out, you really will not miss them at all. Cable t.v., several soft drinks or coffee drinks per day, or smoking, to name just a few things, can take a surprisingly huge amount of money. Know what you're spending it on, and never lose a sense of it.
I have often pointed out that a huge risk of debt litigation for large amounts of money is developing a sense of unreality about it. In the face of large, apparently insurmountable debts, relatively little amounts of money - $25 bank-finance fees, bounced check fees, etc. can simply disappear from your consciousness. If you watch the comments I receive at Youtube, for example, you may have noticed the occasional comments from people who plan to buy what they can and get away with it without paying.
In my experience, there is no such thing as a free lunch. You will eventually pay, one way or another, for every single thing you get. The sooner you remember that, the better off you will be.
If you manage to save some money and put it into a bank account, you won't need me to advise you to do it. There's really nothing like it. I'm sure it's true that people don't save themselves into being millionaires, but neither does spending yourself into oblivion sound like a good start to prosperity.
Contributing to a retirement plan can help reduce your taxes and help you build the savings you'll need down the road. I won't presume to advise you where to put your investment money. Again, though, just remember that there are no free lunches.
You may feel burned by your creditors and above all, by credit cards. You may think you'll never want credit again. But your credit scores can matter in a lot of ways, from getting a job (many employers check credit history, and many federal jobs will not even permit people with large debts to be hired), to the price you pay for insurance, housing, or business equipment. Bad credit carries a high price, and the quicker you can reduce that price tag the better things are likely to be.
Here are some ways you can rebuild your credit:
If you are in the middle class, you probably know that your parents deliberately set about building their credit, from getting and keeping a steady job, living in one place and ultimately buying a house, to building relationships with banks personally, taking on small consumer or investment loans. The trick here is simply that they developed a long-term plan, stuck to it, and got a lot of pleasure over the years watching things come together. While a lot of things have changed, it is amazing how well a plan like that can still work.