Budgeting And Spending Habits That Lead To Debt
It is obvious that money problems are common nowadays. There are many people who are in so much debt. Many people in debts see no choice but to hide almost all the time. What are they hiding from? They hide from people they had borrowed money from. They hide from their bankers because of unpaid loans. They also try to avoid friends and associates who at one time had rescued them from an embarrassing money situation. And so on and so forth.
See, it is not all bad to borrow money. But the main thing is what we do with the money that we borrowed. But what is advisable in regards to borrowing is that, if you must borrow, borrow to finance asset or business. Borrowing does a lot of damages to finances when it is for the funding of consumption.
The reason why some people find themselves in situations that they have to borrow to pay for expenses like house rent, provide food for their families, buy clothes, etc, is that some among them do not earn enough money to meet their transaction needs as and when required. However, for most people, it is they have certain bad habits that drive them into debt. In other words, the primary factor behind most debt troubles is bad spending habits. To get out of money problems and avoid debt, one must first recognize certain bad habits that can put one into debt, and abandon such bad habits.
Success in life requires lots of sacrifices. To be successful in life, one needs to strive developing certain habits and characters. Developing wise strategies on money management is the important to financial freedom. To be financially free means that one has been able to elevate oneself to a level where one do not need to use debt to finance one’s daily needs.
Let’s quickly look at certain harmful habits that can lead to debt accumulation, thereby, putting the victim in a not-too-pleasant corner.
1. Spending More Than You Earn:
Without any iota of doubt, spending more than you earn will eventually put you in debt. Truthful, human needs are numerous. But despite the fact that human needs are enormous, the resources to meet these needs are limited. Thus, it becomes very important to be systematic and careful in how we spend the little that is available to us. This is one of the reasons why we all should have keen interest in Economics as a subject. This is the core reason behind listing one’s needs and wants on a scale and attempting to meet them in the order of priority. What is that called in Economics? Scale of preference, right?
See, the easiest way to spend less than you earn is to have a list of your monthly expenses. Yes, then develop a budget based on the essential items on the list and keep to it. For whatever reason that you spend on something outside your budget, you must adjust your spending in other areas. That’s a good habit!
2. Not Having Fund For Emergency:
Many times, things we didn’t plan for just popped up when least expected. And many of such has something to do with spending money.
Need for expenses that one did not budget for do occur. It could be a medical emergency. It could be a sudden call from a relative for assistance. It could even be a sudden break down of your car. Then, if one do not have an emergency fund, meeting these needs will alter one’s projections for the period. And what alternative is there? Borrowing of course!
Solution? Ensure you set aside a portion of your income monthly as an emergency fund. Then, try disciplining yourself to the stage where you won’t spend out of that fund for purposes other than emergency situations.
3. Not Having Residual Income Source:
This is very important. In case you don’t know, having a second stream of income apart from your primary employment or business help to guarantee your ability to meet unexpected expenses. And it might not be a wise decision if you don’t strive expanding your income.
Use your spare time to engage in useful things that brings money into your pocket. You can be investing and exercising your talent or skill for profit. You can invest to earn income from investment in stocks, mutual funds and real estate as part time investors.
Many people are doing this. If you are on paid job, you may consider engaging in a part time business as a residual income source.
4. Not Cultivating A Saving Habit:
If one does not save part of one’s income, one is simply planning for a future of debt and financial ruin. The rule is: pay yourself first, at least 10% of your earnings by saving this part in an investment savings account. You would later invest what you have accumulated in an asset class that earns you income.
Bad habits are numerous. And there are certain bad habits that can lead to debt accumulation. To be free from debt, try to avoid these dangerous habits.