Money Management Tips to Avoid Bankruptcy

If you're like many Americans today, you might find all of the news surrounding bankruptcy to be rather alarming.  If you share in this sentiment, your alarm is justified.  Bankruptcy is a buzzword that is seen increasingly often in our culture, and you want to do whatever it takes to keep it from being a word applied to your life.

Avoiding bankruptcy is made possible with a few solid money management skills.  When you start practicing these techniques as a part of your habit – and encourage your family to do so, too – you'll more likely than not stave off the bankruptcy courts for as long as you live!

Budgeting

Budgeting is the grandfather practice of all things that follow.  When you establish and follow a good budget, you and your family will establish basic money management skills to govern all of your financial decisions.  A budget is like your family's Constitution.  It determines what is permissible, and what is not.  It is open to change and adjustment, but it does not change easily.  Adjusting your budget should require a lot of conversation and disciplined thought.

So, how should you create a budget?  If you don't know what you're spending already, start keeping track of the figures.  Watch where every penny goes, write it down, and see how your money flows.  Do this for a month so you can get a good grasp on all of your expenses.  Then, create a budget that is based off of these observations.

You'll probably find you're spending too much in some categories, and maybe you're even spending too little in others!  Once you have your budget, good money management practices will only follow if you stick to your budget.  Many people conveniently forget about this second part of the practice a few weeks into their new budget!  Don't forget, and you can help prevent bankruptcy.

Emergency Plan

Next step is to create an emergency plan (or an emergency fund).  We can't stress how essential this practice is.  This fund should have enough to cover about three months' living expenses for your family.  Also, include enough to meet your insurance plan's deductible for all family members.  In case you experience severe illness or become suddenly unemployed, having an emergency plan could be what saves your family.  Not having one can put you at a high risk for bankruptcy.

We hate to sound like we're preaching a doom-and-gloom message, but a good emergency plan can make a world of difference when it comes to your family's safety.  A good money management tip: keep this money easily accessible (i.e. cash), and don't let it double for any other purpose!

We these two practices, you're well on your way to having strong money management skills.  Keep up the good work, and you'll be ready for putting some saving and investing skills to use!