As the cost of living continues to rise and the average wage stagnates, debt is an increasing concern for the working class. Without the right tools and knowledge, it can be difficult to maintain your finances, or better yet, contribute to your savings. While there are some who believe that debt is inevitable, there are insightful strategies to maximize your finances and help you make responsible decisions. Follow these five easy tips to avoid debt and get in charge of your finances.
5 Very Easy Ways To Avoid Debt
Attaining Your Financial Education
A proper financial education can provide you with an in-depth understanding of interest rates, credit rating, and proper debt management. Since educating yourself about finances is the first step to efficiently managing your money, a financial education is crucial to developing healthy spending habits and accruing wealth over time.
While a formal education supplies students with information about a vast array of subjects, basic financial education seems to be missing from the schooling curriculum. Valuable lectures on interest rates, credit rating, and proper debt management are neglected, and must be self-taught and mastered individually.
Self-education about financial terminology and responsibility is the first step to maintaining control of your bank account. Begin with thorough exploration of various debt strategies and research savings tips from some trusted sources. While some strategies may not personally suit you, building up your education is essential.
While it may seem easiest to limit your financial learning to basic research from your home computer, utilizing local resources and workshops will make a considerable difference. To begin, explore the realm of financial metrics used by banks and lenders to extend financial credit. Although these require a bit more effort, established institutions often host financial workshops with a wealth of crucial information.
Create a Complete Budget
Once you feel confident with your understanding of basic finances, manually record all of your expenses for the month. This will likely include recurrent monthly costs, like your mortgage, car, and utilities expenses, and less frequent ones, including dining out and entertainment costs. Keeping a record of your monthly spendings allows you to visualize how your money is being allocated. Understanding that you may be overspending on entertainment will introduce new ways to not only be frugal, but to shift your spending habits responsibly. You may then begin to plan your money saving solutions for later implementation.
If you’re having trouble eliminating extra and unnecessary expenses, a helpful solution is to formulaically calculate a daily allowance. Many financial blogs recommend $70 a week—just $10 a day! With minimal resources to spend on food and other non-household bills, your spending habits will need to be re-evaluated. Cutting down on surplus spending will help you discover cost saving measures that will eventually amount to significant savings.
Always Pay Your Bills On Time
A general understanding of the allocation of your money month-by-month will help you discern the difference between essential bills and unnecessary items. It is vital to pay your bills on time since late payments amount to debt and a lowered credit score. Missing even one payment can result in extra charges and increased interest rates on loans and credit cards. Compounded interest and charges is the primary reason many Nigerians fall into debt.
To avoid this common financial pitfall, it is usually helpful to create a highly visible financial calendar. To this end, determine when and how much of your recurring bills need to be paid per month. Since some companies may take as long as several days to process payments, it’s important to complete payments up to five or six days in advance of the bill’s due date. Additionally, it may prove beneficial to record the date you paid the bill and the confirmation number associated with the payment to ensure that you can verify any question of payment.
Taking the extra step to ensure that every payment is both met and confirmed by the credit card company is substantial to avoiding debt. As you work to decrease how much interest accrues on your debt, you will notice that any compounding debt will reflect closely to the actual amount spent. If possible, paying off your bills in full will also help to eliminate interest.
Avoid Credit Cards or Decrease Your Credit Limit
As it is can be difficult to track every card purchase, credit card debt is one of the leading personal financial issues for consumers. If you’ve previously conducted research on personal finances and debt management, you have probably encountered several sites urging you to avoid credit cards. If you are tied down to a credit or debit card, keep all of your receipts and ideally calculate your expenses at the end of each day.
While many people would like to eliminate the use of credit cards entirely, it generally hasn’t proven to be a realistic option. Reading and reviewing fine print and researching the best interest rates will help you avoid any mistakes or complications. You may want to steer away from companies that utilize catch phrases, like “Buy now, pay later.” Promises of an interest-free line of credit are merely temporary measures that postpone debt.
An exceedingly effective method to keeping track of your finances are to measure your spending habits with mobile banking apps provided by your credit card company or bank. They are helpful in that they reflect your bank statement and all recorded transactions—it can be useful to scroll through your payment history to gauge which bills have been paid or which have impending deadlines.
Plan Extra Purchases In Advance
Realistically, monthly purchases that venture beyond groceries and utilities are inevitable. These will range from small purchases, like a new pair of shoes, or larger ones, like costly car repairs. Once you have planned your budget and created a calendar for your bills, you can determine the amount of money leftover each month for other expenses.
Creating a purchasing plan is a great tool to cover and continuously monitor the costs of extra items. Create a list of all the products you are considering purchasing, such as clothes, electronics, and furniture. Recording these purchases will help clarify which are urgent and which can be postponed.
The Road To Living Debt Free
When you’re in debt, it may initially seem as if there are no solutions to help you out of your desperate situation. However, by following these guidelines, you can begin to rectify any previous money mismanagement and get back on track. Budgeting your expenses and keeping track of each purchase will keep you debt free on a consistent and reliable basis.