Habits That Put you in Debt
If people had the opportunity to change something about their lives, a lot of them would be swift to correct mistakes that denied them financial freedom, especially debt. Unless you’ve ever been in debt, you wouldn’t be able to relate with the stress and emotional trauma that often accompany it. Being in debt requires you to model your life around it. You may even have to give up some financial goals to keep up with your monthly (re)payments.
Debt doesn’t just happen; it is often a result of certain spending habits and making poor money choices that have accumulated over some months or even years. Though some people get into debt with no fault traceable to them, a vast majority of those in debt dug their own debt hole. Most of these debt-leading habits often come in the guise of serving as smart financial moves, and a lot of people fall prey to it.
The following habits are capable of putting you in debt if you keep on with them:
Lack of Financial Budget
A budget gives you control over your spending in relation to your income. It helps you to set spending limits while also working within the plan. Without a financial budget, you tend to get into impulse spending – that is, spending uncontrollably, especially when you are excited, angry, or bored. When this happens, you will overspend and may end up knee-deep in debt.
To break this habit, create a budget that shows your monthly income as well as fixed monthly expenses. When you subtract your monthly expenses from your monthly income, you know what you have left to spend on food, transportation, entertainment, and other expenses.
Paying Your Bills Late
Though it can happen to anyone, late payment of bills isn’t a good habit. When you pay your bills late, it leads to increased interest charges, thus hitting your credit score hard. Make it a habit to pay your bills on time.
If you are the type of person that procrastinates with this kind of task – or even forgets it – you may have to consider enrolling in auto-pay. At least, it will help you stay organized while also saving you the need for late fees and high-interest charges. Your finances should be organized in a way that prevents you from missing your bills.
Eating Out All The Time
Yes, you may run out of time to cook sometimes, and picking up food from or eating at a restaurant becomes the next option, especially after a hectic workday. That’s acceptable! However, if you are fond of visiting the restaurant and grocery stores, it may take a tole on your pocketbook. The situation becomes worse if you place the restaurant meal on a credit card.
Dining out for lunch, especially with friends or coworkers, is a sociable event. However, doing this all the time can cause you to live beyond your means. Remember you will also have to spend additional money on tips if you order in a sit-down restaurant.
Life is full of unexpected occurrences which usually come at various costs. A number of surveys indicate that a significant number of Americans live paycheck to paycheck each month. With that being said, when unplanned expenses arise, most people will have to borrow money to meet the obligation. Emergency situations that may warrant unplanned expenses include health or medical issues, accidents, etc. The inability to meet up with these expenses portends the beginning of a vicious cycle of debts.
To avoid this, set up an emergency account which you fund with a certain amount (Whatever you can or makes sense within your budget) from your paychecks every month. You will be surprised at how fast little money adds up. This will help to cushion any financial pressure that may arise as a result of emergencies. You may also have to resist every urge to dip your hands into this fund unless it is of huge necessity.
Spending Based on Speculation
Some people often spend money based on the expectation of finding a way to get more money in the future, probably in the form of a promised financial gift. This is a recipe for financial disaster. There is no need to increase your budget or spending based on optimism if your income this month will not increase the next month. Never factor an expected increase into your budget until it appears in your checking account. A lot of students with this habit graduate with massive student loan debt.
Let your budget be based on reality rather than hope. With this, you may have to continue saving for any item you want to purchase until you can afford it rather than buying it now with the hope of getting “imaginary” money to pay it back in the future.
Using Credit Card Rather Than Cash
How you use credit cards determine the benefits you will get from them. Rather than use credit cards for ordinary purchases, such as groceries, gas, or clothes, you should embrace the use of cash at hand or the one you have in your checking account. If you are unable to pay your credit card bills in full every month, it is an unwise spending habit to continue using it instead of cash.
When you have credit cards in your wallet, you tend to fall into the temptation of using them at will, thus making you spend uncontrollably. At least, you wouldn’t be paying it back immediately. To avoid plunging yourself into debt, you may have to determine the amount of credit card you need to prevent you from exceeding your limit financially. Also, you may want to maximize your reward earnings through reward programs that allow you to earn cash by charging more on your credit card. In this case, only charge what you would have purchased with cash, and be sure to pay off the purchase immediately.
Trying to Keep Up With Others
We are in a society where people are under pressure to purchase material items they can’t afford just to impress those around them. Such people wouldn’t want to miss out on the latest fashion item or technological gadgets. They are always aiming for things they can’t afford. They take pricey trips or visit restaurants that have highly-priced foot items.
While attempting to maintain a certain lifestyle of luxury can cause you stress and anxiety, it further plunges you into debt and more debts. This habit is a bad one. If you find yourself in a circle where you are judged based on what you earn or the kind of luxurious lifestyle you are living, it might be time to break away from the circle. Do only what makes you feel happy. Don’t live your life to impress others.
The habits discussed above are capable of taking you off the path of financial freedom. Remember the goal is to live a life that is free of debts and to have good financial habits, such as creating and sticking with a financial budget, spending based on your earnings, minimizing your visits to restaurants, using cash more than you use credit cards to pay for regular purchases, paying your bills early, and avoiding the urge to live your life to impress others, can help you avoid debt. We want to BE rich, not LOOK rich.
Check out the FREE video series on my 3 Keys to Unlocking Your Financial Freedom! This video series touches on Budgets, Tackling Debt, and Ways to Increase Income TODAY! I created this series for those of you who have been hit hard by COVID-19. I want you to know there is nothing you can’t accomplish and creating a plan of action is always a great starting point.