A goal everyone should have for themselves is to stay out of debt. However, staying out of debt has earned a bad reputation for itself as being no fun. The truth of the matter is that there are some practical ways to stay out of debt and to understand how you can enjoy life without damaging your financial situation. Financial planning should be a two-step process.
Step 1: The first step is to develop a spending and a savings plan. Once you have set your limits, then all you need is the dedication necessary to stick with the plan. Instead of fighting the urges to spend the money that you have, it’s important to realize how good a spending plan can lead you toward opportunities for living the life that you want without falling into debt.
Step 2: The second step is to turn your spending and savings plan into a habit. If you make the policies a way of life, they will gradually become second nature to you. You will start making the decisions that will best suit your personal finances and you will eventually begin to understand how to avoid getting into debt.
There are five practical tips that can help you avoid debt. Some pieces of advice may not be as easy to follow as the others, but once you get the hang of them and integrate them into your life you will have a plan that can help you gain control over your finances.
1. Make a Budget. Keep track of your spending for at least two months by keeping a log and collecting the receipts to monitor how you are spending. Separate your spending according to categories like food, entertainment, etc. Once you have gathered that information, combine it all with your monthly bills. After that you will have a clear picture of your expenses throughout a month. Before drawing up a budget, you should go through your expenses and see where it is possible for you to reduce the expenses and free up more money.
Create a checklist, make a saving account for the bills, and create an expense item for your food, entertainment, and car-related spending. Anticipate the bill for a month and account for it in your budget. Don’t forget to leave yourself some leisure money. You can enjoy yourself even within a budget.
2. Earn More Income. Does it sound practical to lower your monthly food budget or to put off paying your credit card and apply the money elsewhere? Not really. If you see yourself falling short of cash, then you may want to take on a part-time job to earn extra money, pay the bills, and get your finances under control.
Even if you have a well-developed budget and no money issues, it’s not a bad idea to still make extra money. You can save the money you earn and strengthen your financial position.
3. Credit Cards. If a person has good spending habits, then they can certainly take advantage of several benefits of a credit card. The best way to utilize a credit card is to use it for the things that you know you can afford and take advantage of the rewards you get in return. Use a credit card on items that you can cover in your regular expenses.
4. Don’t Spend, Save! Saving money for a big purchase is always better than opening up a new credit account. Though you may have to wait for that item for a few months, if you do not need the item immediately then saving for it will help you get the things you want without getting into debt.
5. Do it Yourself. Learn how to do the things that you would normally pay a contractor for. For instance, you can save money by changing the oil of your car yourself. If you want to remodel, you can look for ways to do the project yourself. However, do not take the do-it-yourself approach to extremes. Do the things that are less risky and can be done easily.