How to avoid debt
Understand your financial situation
Keeping track of how much money you have and where it goes each pay is hard – especially when direct debits and automatic payments can make money disappear from your account before you’ve even seen it.
Having a better understanding and more control over your finances does help. Consider sitting down with a pen and paper to calculate what goes in to your bank account – and what goes out.
Begin by making a list of money that comes in to the household – then compare it to your costs each week or month. Make sure you include everything; rent, mortgage and other bills. You might even want to add in other things that you know the cost of – fuel and travel costs as an example.
When you’ve got your ‘in’ and ‘out’ figures – the difference between the two is your disposable income (the amount left over). How you spend this is entirely up to you, but understanding exactly how much it is goes a long way to making sure there’s enough left in the bank to cover all of your costs so you can live within your means.
Alternatively, you could consider downloading one of the apps now available to enable you to track your money by linking your bank and cards to it, but you would still need to review it regularly and set a budget, otherwise it will be pointless having the information without doing anything with it.
Save – even just a little
Studies have proven that the most effective savers are those who put away small and affordable amounts of money each pay – not those that try to save a big proportion of their disposable cash each month.
Rather than seeing saving as a burden, find a small amount that you can live without. Budgeting really helps with this. When you understand how much disposable income you have, you can put a little of that into a savings account.
Rather than seeing this as a fund to take from when you see a big purchase you’d like – consider it an ‘emergency fund’, giving you some breathing space should you ever have an issue that limits your income or heavily impacts your out-goings.
Be wary of credit
Using credit occasionally for an unexpected cost or treat many not be a bad thing, but using credit to live on from one pay day to the next, is not advisable.
While payday loans, overdrafts and credit cards can look attractive when you need to just make it a few more days – they’re actually likely to make next month a lot harder, as you’ve now got an extra out-going to consider before payday arrives.
Try to think beyond the short term if you’re considering easing financial stresses by getting credit. Tightening the belt this month can save a lot of sleepless nights going forward.
Hopefully, getting to grips with your budget should make you aware of what’s going out of your account – and when you understand what those costs are, you might be able to make a few cuts that’ll help elsewhere.
If you’ve got a gym membership you’re not using, a TV service you can live without or breakdown cover on a washing machine that you no longer have – it might be time to cancel a few of these services! $10 or $20 a month might not feel like a great deal now, but when you add it up over months and years it’s a sum of money that is better in your pocket than anyone else’s.
Already in debt?
Being in debt is a common issue. You’d be surprised that all those holidays and posh cars that your neighbour has, may in reality all be funded by debt.
And remember, you don’t need to be alone when trying to deal with your financial issues. The important thing is to talk to someone sooner rather than later – debt has a habit of spiralling out of control if you don’t get to grips with it as quickly as possible, so seek advice now if you can’t see a way out on your own.
