Many families are to be found with a unique sort of mid-life crisis; rather than struggling with which sports car will best restore youth, some must start over financially after enduring a financial tsunami. If you’re in that boat, don’t worry; there is hope.
Consider the following plan to come back to track with your family finances.
1. Commandership: If you are trying to get back on track financially after a bankruptcy or other financial disasters that has destroyed your good credit, buying a home could be up to seven years away. Homes are great places to lift families, but mediocre investments. Don’t be frustrated needlessly. Rather than buy a home much sooner and pay extraordinary interest rates, consider focusing a portion of your income on saving for a big down payment over the years so that when you buy a home, it will be one that you can stay in until you retire. If your credit survived your pecuniary troubles, make getting back into a home soon your top financial priority. When you buy a home, try to finance it with a loan that will be completely paid off by the time you retire—probably less than 30 years.
2. Credit: If your credit has been blown up by your financial disaster, count it as a blessing. Being forced to operate without credit for a few years while you restore your credit can be to be welcomed that. If you can’t borrow money, you won’t have to pay any interest. Even if you can borrow money, don’t. Be patient. All you lost that’s really significant can be reassembled with time.
3. College Savings: In any real financial disaster, the college savings get blown away. That doesn’t prevent your children from becoming teenagers ready to start college. Whatever your college plans were, you have an obligation to sit down with your kids and talk about the new realities. Unless their grades will likely entitle them to scholarships that will pay for college, help them develop plans to fund college on their own. If possible, you may invite them to live at home while they are students—a huge contribution to their total college expense. They can be responsible for tuition. Tax credits, grants, and needs-based scholarships, combined with part-time jobs, may get them through local public college programs and leave them college graduates in four years without student loans.
4. Retirement: If you had good retirement savings before your financial disaster, you may still have them. Bankruptcy laws protect some of those assets. If so, great. Start contributing to your savings again—if you’ve stopped—and move on. If your retirement savings have been swept away, you’ll need to make retirement savings a highest priority. You may want to start now to think about delaying retirement a few years passed when you’d originally intend to give yourself more time to save. It’s better to work a few extra years in your sixties than to starve in your eighties.
5. Car: Don’t fall into the trap of financing a car as soon as you come out of the dark tunnel of your financial catastrophe. Drive an old clunker, rent cars by the hour, take public transit, just don’t get out and buy a car that you can finance. The entire model for financing folks with bad credit is built around two principles: make folks overpay for the car and then get them to pay for a high rate of interest. You can earn the same return on your investments that folks with excellent credit can. Take advantage of that and start saving for a car purchase. Don’t let the car you drive define you. Let your financial wisdom to define you.
With these five key guidelines, you can put your pecuniary troubles behind you and build a happy and contented life.
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