Financial Living after Bankruptcy

Internecine_BradyAllen_700xBankruptcy for many Americans is the only option that can help them get a handle on their financial life. Most, if not all, of the people in my profession recommend bankruptcy only as a last resort. Therefore, anyone considering it should think long and hard about it. And then, think again.

Why do advisors say this? Bankruptcy hurts a person’s chances of buying in the future.  This includes buying daily lifestyle items like a home, car and other items.

It can hurt a person’s chances of renting an apartment. It may even hurt a person’s chances of landing a job in the future. How? Many employers and landlords make a credit check part of a background review and if they see a bankruptcy on the report they may want an explanation as to why it’s there. If they don’t like the response, they may use that to disqualify an applicant.

Bankruptcy Starts a New Financial Life

Giving advice on what to do after a bankruptcy filing is the situation I found myself in when a very dear friend of mine asked me, “how and where do I begin to rebuild credit as well as devise and develop a budget and retirement plans after filing for bankruptcy.”

The first piece of advice I gave her was to stay upbeat, positive and look forward to her new financial life. This advice is something she and anyone else who files for bankruptcy should embrace. They’ve come out of the filing experience with a fresh start. That being the case, on one hand, they should simply let the past be the past and leave it there.

On the other hand, there new financial life also offers them an opportunity for soul searching. Here’s how. If the bankruptcy was caused by too much spending, then that needs an honest review. If it was caused by a crazy lifestyle, then that’s cause for a long hard look. If it was caused by a health problem (as most are) and it couldn’t be helped, then they need to move on and not look back.

Put a Budget on Paper

The next piece of advice I gave to my dear friend (and anyone else who has filed for bankruptcy) was to create a budget and put it on paper.

The first step in that process would be to take a piece of paper and draw a line down the middle from top to bottom. On the top left hand side of the page, they should write down how much they make every month.

Next, on the top right hand side of the page, they should start writing down how much they spend every month. The important part with this step is that they are brutally honest. If they spend $150 a month on what they call the “Charlie Sheen Lifestyle,” then they need to put that down. Not writing it down does them no favors and only cheats their future.

Once they get all the expense numbers on the page, they need to add them up. The same should be done for the income in the left hand column. Obviously, they want the totals in the income column to be great then the totals in the expense column.

If not, they can start the process of cutting expenses where possible. In doing this they should also keep in mind that the budget is a living breathing document.  Therefore, they should try to keep it in a place where they can reference it quickly and easily.

If they have to spend more than they make, there may be a need for the individual to do a number of things to increase their income. That may include looking for a better paying job or a second job; maybe even starting a side business.

Set Up and Contribute to Savings and Retirement Accounts

The next step in the rebuilding process involves setting up a savings account and a retirement account. The important part about that is that they contribute to the accounts on a consistent basis. The trick being that they contribute whatever works for the budget. Even if that amount is $5 a month (they can always increase the amount), they should do it and not touch it for any reason. To set up the accounts they can without difficulty go to a bank or brokerage and have a representative set up the accounts.

Again, for many Americans bankruptcy is a difficult time on a number of levels. However, it’s not the end of the world. People who file should try as best as possible to learn from the experience and move forward in a positive and meaningful way. Doing that not only helps them and their life but helps the lives of those around them that love and care about them.

 

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Benefits Of Reviewing Prior Year Tax Returns

IRS4Did you have your tax preparer look at your returns for the last few years? It’s a good idea for taxpayers to review their returns every year. In many cases the review may reveal missed credits and deductions taxpayers may be entitled to that ultimately give them a bigger tax refund.

Review Last Three Tax Returns

This past tax season I reviewed the last three tax returns for one of my clients. In the end, she was grateful I did. Not only had she done her own tax returns without knowing all of the educational credits she was entitled to but she also received bad advice from a co-worker about the number of exemptions/allowances to claim on her paycheck.

She did take some of the educational credits she was entitled to but because she didn’t realize the true extent (and calculation) of the tax law and credit available, she didn’t take the full credit.

Positive Review Results

The review I did revealed that extra unclaimed credit and resulted in her owing the IRS $300 instead of $1900. A huge difference, especially considering she hadn’t started to pay those taxes because she didn’t have the money.

We also fixed the number of exemptions/allowances on her paycheck based on her circumstances.

Not Just “Plugging Numbers into a Computer”

After going through this review process my client realized that filing taxes was not simply “plugging numbers into a computer.” She realized that she was good at her job but when it came to tax law and taking advantage of all the credits and deductions she was entitled to, she needed an expert.

She also helped the effort by telling me everything that happened in her financial life over the past three years, no matter how small the event may have seemed. This was important because given the complexity of the American population; the IRS has built in a number of credits and deductions to help taxpayers from different walks of life. Preparers know more about these benefits than taxpayers.

In the end for many Americans preparing taxes may seem like an easy undertaking of just plugging numbers into a computer but if they are not careful, they may be missing out on credits and deductions they are entitled to. Working with a qualified tax preparer can help ensure the right credits and deductions are taken.

 

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Do a Quarterly Financial Review

470480e1gdwufwtHave you met with a professional and done a financial review lately? Every quarter I like to meet with my clients and go over any changes that have occurred in their lives. In many cases, the meetings give me the opportunity to find out what adjustments need to be made in their financial lives.

Life Happens

If there’s been a promotion, we may be able to increase the amount that is set aside for a rainy day or retirement. If there’s been a marriage or new birth, we need to make sure that family members have the right protection. If clients are no longer happy with their job, we need to map out a plan to find a new job or start a new business. Whatever the changes are, there’s a very good chance that my client’s financial life has been affected. I need to know that so we can tweak our prior plan.

Benefits of a Review

One of the major benefits that results from this quarterly review is that it helps my client feel comfortable letting me know what new things are going on in their lives. How? Some people may feel that they’re interrupting advisors. Scheduling a quarterly review sends a clear message that the changing circumstances are important. It also keeps the lines of communication open for events that happen between meetings.

One of the other benefits resulting from the meetings is referrals. Meaning, I get referrals for my business and my clients help those close to them. How? My clients have family, friends, associates and co-workers that need financial advice. Keeping the lines of communication open lets them know that they have a go to person in their financial life. Why not help others have that same peace of mind?

So if you’re working with an advisor, try to meet with them on a quarterly basis to go over what changes have occurred in your life and see how that can impact your financial life. Remember, the meeting may last a few minutes or hours but the impact can last a lifetime.

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