This means resisting the pressure to co-sign on loans and other forms of credit for friends and family members. This can be difficult if you are pressured heavily to co-sign a loan by a friend or family member who you know is feeling financial pressure themselves, but if something goes wrong and the debt goes unpaid, then both of you are negatively affected. There are exceptions to this though, which may include school loans for your kids, but ensuring that you limit the amount of debt that you take on as much as possible is crucial.
The second important point is to make sure that you do not just charge purchases onto a credit card because you don’t have the money at the moment. Learning to hold off for a short while, save your money, and leave your credit cards for an emergency is a valuable skill to learn. If you charge a bunch of frivolous purchases to your credit cards, you could find yourself in a terrible situation if an emergency financial situation arises.
Third is to plot out a spending plan and to stick to it. This is basically just a budget, but many people do not build their budget correctly. When you are planning your budget, it is important to take every expense into account, but to also build in a little bit of flexibility to make sure that you always have some cash in reserve.
What this would mean is that if you have $3000 per month after taxes, and your monthly bills and rent add up to $1500, you then have $1500 left over, right? The thought is to funnel all of the left over money into debt repayments or to deposit the cash in your savings account. It is important to save, and it’s obviously important to pay off your debts, but you also need to take care to leave yourself a little bit of cash for your normal social engagements and any situations that may come up that require a large expense. Keeping extra cash on hand, within reason, can help to limit the amount of money you have to charge onto your credit cards.
Next up is to actually start a savings account. The above point about saving being important is certainly true, but successfully saving money hinges upon having a specific savings account set up. These days, interest rates are not as good as most of us would like, but saving money is still an important step in gaining more wealth as well as staying debt free.
What is great about many banks these days is that you can link accounts and set up automatic transfers. This helps to ensure that you save a little bit each month without having to do anything else past the initial setup. It is important to make sure that you save enough to provide yourself enough financial security for a rough patch in life, and then be sure not to touch it unless you have absolutely no other choice than to go into debt.
And the fifth point to discuss here is to make sure that you are honest about your financial situation. Without being honest to yourself about how much money you make and how much money it takes just for you to exist each month, such as food and rent, it is far too easy to spend yourself into debt while you try to keep up with a lifestyle you cannot afford.
This may be the most difficult step for people to take. If you have a social circle that is made up of professionals with high paying jobs, while your job is not as high paying, the debt can creep up quickly. Resisting the pressure to “keep up with the Joneses” is tough, but it is worth it when you look at your long-term financial security.
Remember, debt is very difficult to manage and get out of. While the process is fairly straightforward, keeping in line with this process and not making common financial mistakes can be challenging. Follow tips like these or other practical pieces of information and see what a life free of debt really can be like.
Source: Personal Finance