It's crucial to "bankruptcy-proof" your life. To that end, we offer lots of practical strategies for taking control in our book, Invest in Yourself. And here's our crash course in protecting yourself from unexpected financial difficulties:
Pay Down Your Debts. The less you owe, the lower your risk of bankruptcy. If you're already trying to pay down debt, search for the lowest interest rates to minimize your costs -- and always read the fine print. Many issuers are now charging very high punitive interest rates, not just if you are late by one day on your card, but in some cases, if you're late on other bills as well. These interest rates, as high as 35%, can back any of us into a corner ... and straight into bankruptcy court.
Create an "Ace in the Hole." Continued instability on Wall Street is clearly having an effect on Main Street's job market. Having a small side business is an excellent way to hedge your bets. It can give you extra income, tax deductions, and something to fall back on should the you-know-what hit the you-know-where. Start small, avoid running up large debts, and don't rely on one supplier for most of your sales or income. Women and retirees, two of the groups expected to be most negatively impacted by the bankruptcy legislation, should especially consider creating an Ace in the Hole.
Think like a Consultant, No Matter Where You Work. No one's immune in today's job market, so thinking of your boss as a client can help you keep your job. As a consultant, your job is to help your client profit. Know the business as well as the industry, make contacts within and outside your company, and ... always be on the lookout for your next opportunity.
Cultivate a Simple Attitude: Like many people, you may have been counting heavily on the booming stock market to fund not only your retirement and a college education or two, but also to pay for a few luxuries, say a second home or a new SUV. But the last few months, if not the last few years, have brought many folks down to earth. They're scaling back and discovering that less is really more.
Make conscious choices about the lifestyle you truly want, and you'll be less likely to spend money you don't have to buy things you don't need. The less you spend keeping up with the Joneses, the less you'll owe, and the less likely you'll end up bankrupt.
There's a bonus to choosing a simpler lifestyle: You'll be less likely to feel deprived if things get worse before they get better.
Control Your Spending. Consistently spend less than you earn, and save as much as possible. Did you know that a dollar you save is worth about twice as much as a dollar you earn? Why? Because Uncle Sam hasn't figured out how to tax us on the money we save ourselves by shopping smarter -- yet!!! Finding painless ways to cut your spending is one of the best ways to protect yourself in today's uncertain economic climate.
Remember that Breaking Up Is Hard to Do … and Expensive. Divorce is a key reason why people go broke. If your marriage is in trouble, acknowledge it. Then see if you and your partner can devise some rational ways to work out your differences. Or perhaps it's time you got some counseling. Rarely is a bad relationship solely the other person's fault. It takes two to tango, two to bring a marriage to new heights, and two to break it apart.
Maybe you'll decide to go your separate ways. Especially if you have children, the way you part and how you relate to each other after you do, will affect them for the rest of their lives -- emotionally and financially.
Fit Insurance into Your Budget: Uninsured medical expenses can lead to bankruptcy, so make sure you have adequate health, life, and auto insurance. Understand exclusions and limitations, and don't be afraid to challenge medical bills that appear out of line. Getting sick is stressful enough, without having to worry about how you'll pay the bills.
Keep Learning. Even if we do say so ourselves, a good place to look for more ideas is Invest in Yourself, which includes more on all of the above, plus our ideas on how to be your own financial planner, pay for college, and fund your retirement. Also, there's lots of free info on this Web site -- dozens of money saving articles from our newsletter, The Pocket Change Investor, our top book picks, and lots of links.
No one knows for sure whether President Bush and members of Congress who have accepted millions of dollars in campaign contributions from the large credit card issuers who are lobbying for this legislation, will have the nerve to pass the bankruptcy bill at this time. Either way, there's no better time than right now to take control of your finances and bankruptcy-proof your life.