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Thankfully, insolvency has moved on a lot since the days of Dickens.  Unless you’ve actively committed fraud, you’re not going to prison.  In fact, you’re not even going to be under house arrest.  You’ll certainly be living on a tight budget, but your basic needs will be covered.  All-in-all, therefore, modern insolvency has stopped being a punishment and is now, effectively, a learning experience.  It’s up to you to make the most of it.

Take time to reflect on how you wound up insolvent in the first place

There are basically two reasons why people have to declare insolvency.  These are bad luck and bad decision-making.  Many insolvencies could be a combination of both.  Realistically, the whole point about luck is that there’s nothing you can do to influence it.  It either favours you or it doesn’t.  You can, however, control the decisions you make.  Part of this involves learning from past mistakes.  This involves being honest about when you made a mistake.

Sometimes it can be hard to see what was genuinely bad luck and what was bad judgement.  For example, COVID19 itself is unarguably an outstanding example of bad luck.  Its impact, however, may depend largely on how well you have managed your finances up to now.

For example, those with minimal debt, some savings and insurance are at least going to have more room to manoeuvre than those with extensive debt, no savings and no insurance.  There’s no point in kicking yourself over past mistakes but there is a great deal of good in learning from them.

Learn to live within your means

You won’t really have a choice about this.  While you are insolvent, you will not be able to get credit.  On the one hand, this means that you cannot be tempted to buy products or services you cannot really afford right now.  On the other hand, it also means that you will not be able to use financing in an emergency.

Knowing that you will have no access to credit at all, not even in an emergency, should motivate you to learn how to plan ahead.  If an expense is predictable (e.g. new shoes every so often), then you need to be sure to put money away for it.  If an expense is not predictable (e.g. an emergency vet’s bill), then you need to think about how you can prepare for it.  For example, you might take out insurance and build up savings to cover the excess.

Work out your real priorities in life

You can think of the period of insolvency as being a time when your life will be stripped back to its bare essentials.  This could be an eye-opening experience.  For starters, you’ll probably find out who your real friends are.

Instead of viewing insolvency as a time in which your opportunities are limited, think of it as a time for restructuring.  Think about where you want to be five to ten, even twenty years down the line.  Then think about what needs to happen for you to get to where you want to be.

Obviously, you’re not going to be able to put a lot of money towards achieving your goals.  You may, however, be able to dedicate time to making them happen.  You may also have a little bit of budget you can use.  Even if you don’t, you may be able to make progress with tools you already have and skills you can learn for free.

For example, if you’d love to open your own business, you could probably afford to buy a domain and get the associated social-media handles.  Then you could focus on building a social media profile using your smartphone to capture photos/video and free editing software.  If you don’t have photo-/video-editing skills, then use the internet to learn them for free.


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