Top Reasons People go Bankrupt and How to Avoid Them
Bankruptcy is a sunk ship.
Avoid getting on the Titanic in the first place. Know what to look out for and plan accordingly.
The number one reason people file for bankruptcy is medical costs. Harvard University’s research indicates that roughly 62% of personal bankruptcies occur for this reason. Although you cannot avoid getting sick there are some things you can do to lessen the likelihood that illness will lead to financial problems.
Keep in mind that preventative care is cheaper than treatment. Stay on top of screenings and checkups, exercise and eating right. Sure, a gym membership and healthy food costs money but in the end, you will save. Also, can you put a price on quality of life and health?
There are many types of insurances to keep you protected. Life, health, long-term care, disability, auto and homeowners just to name a few. Learn about your coverage and how they cover you and pay out. An emergency fund can help offset any delays in coverage or payments. If you don’t have an emergency fund, start one immediately and work towards building up an appropriate amount for you and your family. Remember that insurance may no cover everything so have some money set aside just in case.
Job loss, the second biggest reason for bankruptcy. When things are good, we forget. People have a positive outlook and tend not to plan for negative things, like job loss.
It’s good to be positive but plan for the worst.
Not planning is just naive. Otherwise, you may risk needing to stay afloat by using credit cards and loans. The bigger the cash reserve, the better but it should also not jeopardize your long-term goals either.
Start by figuring out how long you can last without an income before you would need to rely on outside sources. The amount you’ll need as a cash reserve is different for everyone but consider how long it takes in your industry and level to get a new job.
The third most cited reason is excessive credit. Saving for something is almost always a better idea than getting it on credit. Not only do you have to pay interest but unforeseeable events can lead to your falling behind on payments.