Today’s guest post is by Andy Masaki with some advice for young moms to avoid bankruptcy and live debt free! Having seen the negative effects of bankruptcy here are some lessons learned the hard way. Thank you Andy.
We got to admit that women are taking the finance game further these days. That’s what the recent studies are saying and I can’t agree more!
My wife is concerned with every single penny she earns, while I, on the other hand, become a victim of unnecessary expenses at times. Say, for example, the Xbox One I got last month for me and my son!
This post will be providing tips to ensure that young moms can avoid bankruptcy and stay debt free.
Remember the only solution for this is proper budgeting and good money management. The tips for bankruptcy will come at the end of this post, but first I will talk all about money basics and budgeting!
I will be breaking this into two situations for a better grasp of the topic.
So buckle up moms, things are going to get a bit bumpy!
Situation-1: For couples (When both you and your spouse are breadwinners) :
Usually, things run financially smooth if both the husband and wife are earning members of the family. That’s so because you are having two pillars to support your financial freedom.
Guess you have already figured out the perks of having more than one income in a family if both you and your spouse are employed!
So, to make your financial life more chirpy, sit down with your spouse and do a few of these things!
1. Create a fund:
That’s what I and my lady did years ago after I filed for bankruptcy!
Oops! Yeah, I did file once! And that was the time my wife had to look for a job, as we got financially broke, and no company was ready to offer me a good job!
Now I really don’t want the same thing to happen to you, and want you to be ready to fight any financial setback.
So, create a fund, and assign a purpose that’s going to be useful in the future. Say, for example, your child’s college costs, or an emergency fund to tackle sudden medical expenses.
This is actually pretty easy if both of you bring home a good amount of dollars each month. You can start off by keeping 2% from your salary and another 2% from your spouse’s paycheck every month!
Just wait and watch for one year, and see how fast this savings grow!
2. Plan a budget:
Techniques used for budgeting by employed couples should be a little offbeat. Instead of any normal enveloping system or zero-based budgeting, you can try something way more cheesy!
You and your spouse can easily decide on what type of expenses each of you will bear.
Like, if your husband gets busy with the utility bills and clearing debts, then you can handle the savings part and use your salary for home renovation or insurances and so on.
Just be sure that both of you are consistent with a plan!
Usually, chances of filing a bankruptcy decreases if there are two breadwinners!
So utilize your income to the fullest for a secured future and plan an awesome budget!!
3. Fight debts together and don’t lose temper in the moment’s heat:
To be frank, debt has become family friends for us. They keep coming to our lives every now and then.
Just remember they are like that relative who is highly irritating and stays over with us for a few days only to be fed away!
So all you got to do is keep your children out of this mess and handle the whole thing tactfully.
Swiping debts ain’t that easy after all. You got to figure out what method you will use to be debt free.
Debt settlement will help you reduce your overall debt, but your credit scores will be hurt quite a bit!
While debt consolidation might help you increase your credit score but the process is time-consuming.
So be wise and grow some good habits to be debt free fast.
Situation-2: When the mom flies solo (Single parent):
This is where the whole thing gets tough!
Practically you need to play both the roles of father and mother at the same time. So things might get burdensome while balancing between family and work! The truth is there’s no one to help you out.
Again if you have debts on top of these, with chances of bankruptcy just spicing it up, then you will be in deep waters!
Hence, being a single mother, you got to consider these things first:
You are the only breadwinner, so your family will be in serious danger if you ever suffer a job loss or file bankruptcy.
You are the only one to take care of your child, and being a smart mom, I know you are always there for your child, both financially and emotionally. So, both yours and your child’s future depend on you!
You are alone in the war with your debts; so, it is you who have to do all the debt cleaning yourself.
You need to be a super mom, who can make all the necessary sacrifices to protect her little one both with love and financial stability!
So, let’s see how you can be financially successful and never bend down to monetary problems.
1. Change your lifestyle when needed:
If you think that you are exceeding your quota of expenses and are left with little or no savings each month, then you are seriously in the danger zone.
The first thing to do is start living a frugal lifestyle.
Now that means quite a few sacrifices. Your salon visits will get reduced, you can’t have frequent dine-outs, no costly stilettos, or luxury brands like Louis Vuitton and Zara!
So, you can pretty well say that you have to practice living a monk’s life, only that you don’t have to live in a monastery!
2. Figure out a budget:
With only one source of income, your family needs proper budgeting strategy to ease out financial stress.
This is also the only key to avoid debts and bankruptcy.
I would suggest you merge backward budgeting and zero-based budgeting together.
So, what you can do is set aside an amount for savings each month on your payday.
Say, you can stash away 20% of your income straightaway to savings. Now with whatever is left, assign every single dollar a suitable purpose.
For example, some for bills, some for loans, some for credit card debts, and so on.
Even after this if you are left with some extra cash, then you can put that towards savings, use it for luxury expenses, or can make extra payments to clear out your debts. I mean whatever suits you the best!
Your budget should have ample space to build emergency savings for future use.
Other methods to minimize overspending could be cutting down credit card usage and sorting out needs and wants before making an expensive decision!
Always try to pay with cash for any purchase you make. This way, you can avoid hefty interest rates on credit cards and also keep a track of your spending.
3. Always give your child’s upbringing the first priority.
You know everything can wait, but your child’s growing up just can’t.
This means admission to a good school, tuition fees, sports classes, and so on.
You just can’t deny that these are cheap.
A single wrong step in this part can actually ruin your child’s future! So, take all the necessary steps to help your child have a bright and successful life!
Plus if you can manage your student loan quite well in the future, it will be considered as a good debt! Nothing can beat a good education, isn’t it?
So, do all the necessary sacrifices to give your child the best he/she deserves!
With this, we have come to the end of this post.
As I said earlier:
Here are some useful tips to avoid bankruptcy and be debt free (This is for both single mother and couples):
1. Never let your debts accumulate over time. Always be current on your debt payments and don’t underestimate small credit card balances.
2. Don’t miss out on opportunities to modify your loan (mortgage, auto, etc.) or refinance your loan for decreased interest rates whenever possible.
3. Don’t buy too much of insurance policies and get your money blocked. Only buy policies that you think are most important.
4. As I explained earlier, if you do backward budgeting, and you have quite a number of debts to clear, then make your first priority to pay off debts. Set aside a good amount from your income each month for debt payments.
5. For multiple debt payments, you can use the debt snowball method or the avalanche method. In the snowball method, you make the highest payment for the smallest debt and once the debt is clear, you just add this amount for paying the next debt in your list
While in the avalanche method, you clear out the debt with the highest interest rate first!
6. Never file for bankruptcy just like that. First, have a brief talk with a financial counselor and see your options to safely clear out your debts. Always remember, there’s no turning back with bankruptcy. You have to start your life from square one, all over again!
Thank you Andy.
Andy is a contributor at Oak View Law Group and contributes specifically on personal finance topics. You can also find him fielding queries based on money management topics on various online communities and social media platforms. Twitter
Please follow and like us: