This blog is a follow-up to the article regarding “Recent Observations in Bankruptcy Court”, and will hopefully provide valuable information about preventive measures which can be taken to prevent, or at least minimize, financial distress.  Based on those observations, our firm would advocate these precautions, and/or suggestions:

1)       Get in the habit of saving, even if it is just $5 per month.  Make a commitment to supplement your savings account with a portion of your income tax refund or any type of annual or quarterly bonus.  This can provide a ready reserve for an emergency, such as car repairs.

2)      If your employer offers a voluntary retirement plan, such as a 401(k) or 403(b), take advantage of it.  Even if you cannot afford to take advantage of the full match that may be offered, the little bit which may be set aside now will amount to a lot more later on.

3)      Once you participate in a 401(k) or similar plan, do not borrow against or withdraw it.  The tax consequences, in addition to the loss of value, are almost never worth it.

4)      Don’t forget your 401(k) or similar savings plan when you change jobs.

5)      Carry full-coverage insurance on your automobiles, but save money on the coverage by allowing for a higher deductible.  How will you pay the higher deductible, if it should be necessary?  From the savings account you set up in line 1.

6)      Price shop before buying a car, and don’t buy more car than you can afford.  Do your homework, and consider the costs of ownership, including fuel, maintenance, and insurance.

7)      Read the fine print!  This will prevent unpleasant surprises such as a dramatic increase in an introductory credit card interest rate, or the accidental expiration of credit card miles/points.

8)      Set goals for larger purchases, such as homes or automobiles, that are contingent upon reaching predetermined debt/income levels.

Keep in mind that while these suggestions are primarily directed to younger earners, they can apply to all ages.  Part Two will address financial considerations for those with families.