The new year is just around the corner so let’s review, shall we?
Going into debt is often a choice. We make the choice when we buy something we can’t afford to pay for. Every time we don’t bother to check to see if we have enough money in the bank to get to the end of the month, and every time we spend $5 on rubbish without giving it a second thought. Yes, sometimes there are life events that can contribute to pushing a body into debt: illness, widowhood, divorce. But if you are managing our money wisely, those life events will be a lot less painful.
#1 Get yourself some money management skills
Yup, money management is a skill. Unfortunately, loads of people are missing it. They fly by the seat of their pants hoping that things will turn out okay. Then they end up bailing for dear life to stay afloat. All the credit counseling, all the bankruptcies, all the income in the world won’t save your butt if you don’t take the time to figure out how to use what you have to your advantage. There are rules to follow, work to put in, and self-control to be applied. It may seem easier to whine, “I can’t”, “the math’s too hard” or “I want what he has” and go on happily ignoring your reality. You could say all of that, but that’s the first step to Debt Hell.
#2 Set up an emergency fund
If you bought the marketing B.S. that “a line of credit is an emergency fund” it’s time to get with reality. And if you’re using the excuse that interest rates are pathetic and your money would just be idling, you’re deluding yourself. The point of an emergency fund is to have cash at the ready should the worst happen. With six months’ worth of essential expenses in the bank, getting sick won’t also make you financially ill. Having an emergency fund means you have options.
#3 Work harder
Some people are just born lazy. Earning $14 an hour for 37.5 hours a week is fine if you’re prepared to live on $450 a week. But most people aren’t. They want to buy beer. They want cell phones and premium cable. They want everything everyone else has without finding a way to make more money.
#4 Keep income and expenses balanced
There are people who buy a home and think they can still eat out six nights a week. And there are people who get laid off from work, become ill, or stay home to raise their children, but don’t cut back on their spending. Whether your income has gone down or you’ve made a move that sends your expenses up, using credit to fill the gap in your cash flow means you’re stepping onto the road to Debt Hell.
#5 Invest in insurance
Think that you’ll never get sick? If you’re 30 years old, what’s the likelihood that you’ll have a long-term disability – lasting more than 90 days – at some point in your life? Go ahead, guess. Okay, write down the name of two of your friends and drop ‘em into a hat. Add your own. Now draw one name out of the hat. That’s right: Your chances of becoming disabled (and staying that way for 32 months, on average) is 1 in 3. You’d better have enough of the right kind of insurance so you don’t end up sick AND poor.
#6 Talk about your money
How can you have an intimate relationship with a mate and refuse to talk about your money? You love each other enough to make a life commitment but aren’t willing to talk about how to manage your money as a team? If you don’t want to be held accountable or your self-esteem is bruised because your mate makes more and throws his/her weight around, Debt Hell is around the corner.
Having a balanced financial plan is so important. Sure you can forgo one leg of your financial plan because you’re trying to make another stronger; giving up saving until your debt is repaid is the classic example. But don’t fool yourself into thinking you’ve got a balanced plan. For like a table with a weak leg, it’ll only take a little pressure in the wrong place to make the whole thing fall down and go boom!