Life happens. While no one ever plans to file bankruptcy, it's good to know that it's there as a safety net. However, there are steps many people can take now to avoid needing my services later.
So, while I'm writing this as something to be instructive for children, there are many lessons big people can learn also. And no, this doesn't mean that everyone that needs to retain me as their bankruptcy lawyer "failed" at one or more of these. Many events in life -- a divorce, job loss, car accident -- cannot be prevented or anticipated. Following these simple pointers should make it easier to weather the storms... when (not if) they arrive.
Tip #1: Apply and hold only 2 credit cards
These credit cards are not because you need them, but for convenience. So, if you have two, one can be for making reservations, purchasing online, and stuff like that. The other can be as a backup, in case the first card expires.
Tip #2: Manage your debt: Pay balances off in 3 months
It is wise to pay off your credit cards each month in full. However, this often doesn't build credit. When you show that you can manage your debt by paying off your debt in time (not too long, though), it demonstrates that you're in control of your cards, not vice verse. Plus they get interest off you, and that makes them happy, indirectly boosting your FICO score.
Tip #3: Save money: Pay Yourself First
I've written before about paying yourself first, but I'll sum it up this way: No one saves. No one. We find a way to save for the IRS, and find a way to save for the Franchise Tax Board, even some 401k funds. How? We take it out of our check, so we don't miss it. Do the same with you.
No one saves.
Take only 5% out of your check and save it for you. You won't miss it.
Teach saving. Piggy banks. Rainy days. All that. Things we know we've heard but stopped living at some point around 2nd grade.
Tip #4: Avoid debt
Credit cards are not your friends. More credit cards in the mail is not a compliment. A new higher spending limit on your cards is not wonderful. Cashcall and pay day advances are not doing you a favor.
Tip #5: If you can't afford it, save for it (for your kids)
We need to teach our children the "joys" of delayed gratification. Our parents didn't buy cars with financing; they saved for them. We are too tempted to get everything now, today. Borrowing to pay it, use it, and then paying back long after the thing is gone, broken, or upgraded.
This is not just the kids who need to learn. Parents need to learn to say "no" to kids. Such is the desire for parents to provide everything to their children that they borrow and go into debt as a pacifier. Save. Or teach the child to save.
Tip #6: Figure out your budget
I'm always surprised in my office when people are asked how much they spend a month, and the blank responses. If you take-home $2,000 a month and your rent-and-car payment "must pay" bills are $1,500 monthly, figure out how to make that other $500 last. (Hint: this does not mean borrowing from Chase or Capital One). Know your budget.
Tip #7: Use Debit, not Credit
The debit card is your money. Use that. It's much better than the deadly ATM withdrawal, since you can track your money by reviewing the statements.
Tip #8: Give your kids an allowance... and stick to it
Personal accountability and responsibility is learned when they have to live off what they have. If they learn that every time they want more they can get it, they are not learning budgeting. More money? More work. That's what we all do in the work world. Overtime means more money, and sacrificing time to do fun things.
There are a lot of ways to teach your kids lessons that will last them a lifetime. Many involve spending. Some involve saving. Most involve avoiding debt.
If these tips are followed, when the inevitable day comes where "into each life a little rain must fall," then the rainy day fund will be an account earning interest. It will not be a piece of plastic ready to keep you captive for the next five years.
[ Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither HandelontheLaw.com, or any of its affiliates, shall have any liability stemming from this article. ]
Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author, handelonthelaw.com, or any of its affiliates shall have any liability stemming from this article.