We’ve all heard stories about lottery winners ending up in bankruptcy court, so it’s interesting to hear a twist on the usual saga. According to Time magazine, Patricia Kluge (once called "the richest divorcée in history") has filed for Chapter 7 bankruptcy.
This, after her 1990 divorce left her with a reported $1 billion settlement. Astonishing as it is, it teaches some important lessons about money, debt and bankruptcy.
Why the Very Rich Go Bankrupt
It’s easy to imagine that if we won the lottery, all our money problems would go away. But as Ms. Kluge shows us, it’s not about how much money you have, it’s about how you manage it. This lesson is valuable whether we’re billionaires or recent bankruptcy filers.
So how can you make sure you’re managing your money well?
- Know what you make: Seriously. Look at your income and know exactly how many dollars flow into your bank account each month.
- Know what you spend: With digital banking and tracking tools, this is easier than ever. But a surprising number of people don’t bother keeping track of where their money goes. Until you actually figure out how you’re spending your money, you won’t be able to make meaningful financial decisions.
- Make a plan: Some people would call this a “budget.” But lots of us don’t like that word. So instead, plan where you want your money to go. Plan for some to go to savings, some to go to bills, and some to go to treats.
- Look ahead: We’re often blindsided by expenses that we “didn’t see coming.” But if you haven’t taken your car in for a checkup in years (or haven’t seen the dentist in ages), you’re playing a risky game. Small maintenance costs are usually cheaper than major repairs or replacements, so keep track of the state of your health and appliances.
- Look behind: One way to plan for future emergencies is to review your expenses of the last few months and years. First kid needed braces? Better start saving for the second. Air conditioning on the fritz? Put some money away for next summer. It’s natural to ignore problems we don’t want to deal with, but that can lead to long-term turmoil in your finances.
Most of us won’t have the chance to squander a billion dollars, but anyone who files for bankruptcy is eligible for a shiny new financial start at the end of the case. It’s important for all of us to remember that bankruptcy is the beginning of a process – careful financial management in the post-bankruptcy period can make the difference between financial floundering and financial success.
Tags: bankruptcy, celebrity bankruptcy, chapter 7 bankruptcy, personal finance
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