Debt is a big gaping pothole in the smooth highway of your life. Save yourself and the people whom you care about from the grief and heartache that debt brings. With these 5 strategies to help you stay out of debt, you can keep your life’s road trip fun and carefree.
Strategy #1: Focus on Needs, Not Wants
The next time you get the urge to buy something, stop for a minute. Consider carefully what you’ll be using the item for. Score it from one to ten, with one being something you could live without and ten being essential. Don’t buy it if it scores low.
Think about all the stuff you’ve accumulated in your closet or garage at home that you don’t use and is just sitting there. If you have an urge to buy another fabulous blouse, count the ones you already have. Does having another one really make sense. Instead of getting a new paperback, why not take advantage of a nearby public library, or look for free copies online?
A good mantra to follow is never buy something the minute the urge hits you. Revisit the decision to purchase after 1 week so that you have time to consider the merits of that purchase.
Strategy #2: Keep a Money Diary
We tend to forget small expenses if we don’t write them down. The $15 you spend on snacks every day add up to around $5000 a year! If you abstained from snacking, you could have saved up for a new laptop or something you truly need to have.
By making a daily money diary, you can see exactly where your money is going. You can identify frivolous spending that you probably didn’t realize because the amount seems insignificant in isolation.
Forget brand names and commercials; learn how to identify quality goods by comparing them with each other. That way you can pinpoint real bargains and save tons of money without scrimping on value.
Strategy #3: Create and Stick to a Budget
A budget is simply just a spending and saving plan. Taking your total income as a base, determine your maximum allowable expenditures for each category and follow it religiously. You might want to use the templates that we’ve developed for our students.
Budgets encourage imaginative spending and give you an insight on how to save more. You can keep food costs down by brown-bagging instead of buying lunch. If something is too expensive, then you are obligated to hold it off until you can afford it. It doesn’t mean that you can’t have it at all, just not now.
Most people tend to miscalculate their spending ability largely because they don’t keep track of their income and expenses. Use a budget to help you plan and you’ll find that you can control your spending better once you’re transparent to yourself about your own finances. Always spend less than you earn and base your calculations on actual money and discount credit.
Strategy #4: Be a Responsible Credit Card User
Credit can be a curse if abused, but used wisely, it can be a true blessing. Never let yourself be tempted to break your budget with credit. Minimize credit card debt by paying down the entire balance if you can (it’s definitely possible, if you systematically follow the budget that our students use), if not, pay down as much as you can afford.
As you progressively reduce your debt, plan your purchases such that you don’t incur unnecessary additional balance on the card. You might even want to consider abstaining from using the card completely and stick to paying with cash until you pay them off. Investigate the option to consolidate your debt by moving to credit companies with lower interest rates. Once you get back on your feet, limit yourself to two credit cards at most.
Strategy #5: Save, Save, Save
You need to set aside funds both for planned and unplanned expenditures. An example of foreseeable expenses is the inevitable holiday season. A contingency fund amounting to three to six times your household expenditure should always be ready. You’ll find it useful should an unexpected event arise and you need the funds immediately as in the case of a medical treatment or a layoff.
Living a debt-free life is achievable (evident through the accounts of many who had successfully traveled the path), but you need to take responsibility for your actions. Never spend more than you earn, and remember to set some aside for both planned and unplanned expenditures as well as for the future.
Financial contracts and terminology may seem difficult, but it is essential to understand them if you are to avoid costly mistakes. Learn how to manage your finances, and you will never have to worry about breaking down in the middle of your life’s journey.
Photo Credits: Cindy Chin