The road back from bankruptcy takes patience, but you’ve got a second chance at financial success. What financial success means is different for everyone, and income will always be a factor. That said, with the right choices, you can start on the path toward greater financial comfort.
These steps can help you on your way to a better financial future.
Table of Contents
#1 Set Your Goals
Why do you want to be financially successful? It seems obvious at first, but when you have clear, realistic financial goals, you have the motivation to stick to your budget and stay on track. If you’re not sure, think about some of these goals:
- Buying a first or new home;
- Opening a business;
- Not having to worry about paying bills;
- Saving for a robust retirement.
#2 Start a Budget
After filing for bankruptcy, you will have to participate in two credit counselling sessions with an insolvency counsellor. Those sessions will help you learn how to make a budget and manage money so you can stick to it.
Those are skills you should now apply to your post-bankruptcy budget. Now that you no longer have to pay down debt, you can put that money toward savings.
#3 Build an Emergency Fund
An emergency fund should be your first savings goal. It’s money that you always have on hand in case things don’t go as planned. How big your emergency fund should be is a point of contention among financial wizards, but these are some of the most common recommendations:
- Start by saving $1,000 for unexpected expenses;
- One month of living expenses if you’re still trying to pay off debt;
- Three or more months of living expenses (generally anywhere from six to twelve) to help you get by in case you lose your job or cannot earn an income for a period of time.
#4 Rebuild Your Credit
Now that you’ve started saving, you can start responsibly using credit again to improve your credit score. Your score likely took a hit leading up to your bankruptcy, but you can undo the damage. Once you can qualify for a credit card again, you can use it, but you should pay off the full balance every month. Over time, this will result in a big improvement to your credit score.
#5 Start Investing
Once you actually have some money to work with, it’s time for your money to work for you. Investing allows your money to grow well beyond what you could save yourself. When you first start investing, work with a financial advisor who can show you options, explain the risks, and explain the potential returns.
#6 Use Debt Productively
As your credit starts to improve, you’ll start seeing offers for new credit cards, pre-approved lines of credit, and other options. It’s important not to be lured into using credit that a) you don’t needand b) isn’t growing your finances.
Debt that helps you purchase a new asset or generate income (such as a rental property) should ultimately help you (though there’s still a risk). Using a line of credit to go on vacation will only hurt you in the long run.
You can get back from bankruptcy. Patience, smart decisions, and financial planning will help you on your way.