Unfortunately, for a lot of people, debt is – or is becoming – a fact of life. It’s all too easy to borrow money in the firm knowledge that you can and will repay it in time… only to see your circumstances change and your ability to repay the money you owe taken away from you.
It’s a reality many of us have to face – ‘debt’ becoming a household term.
However, despite the difficult economic times, debt can be avoided – and we’re going to explore some of the ways you could avoid falling into debt in this guide.
Careful budgeting
The foundation, and arguably the most important aspect of managing your finances, is your budget. You might be familiar with the term – after all, it has been thrown around a lot in the news over recent months… but are you familiar with your own personal budget?
Your budget is, in simple terms, your income & spending plan. It covers the money you earn and the money you spend – and by employing a bit of careful budgeting, you can make sure you’re always in full control of the money coming in and going out of your bank account.
Your budget doesn’t need to be complicated, but you might find it easier to stick to if you write it all down and check it at the start of each month.
Here’s a quick run-through of what you could do to create your budget:
- Write down the money you earn / receive each month at the top of a sheet of paper.
- Underneath this total, list all of your expenses for the month, starting with the most important (mortgage/rent costs, for example), going down to the least important (typical spending on luxury items, take-aways, etc.) – detailing what each expense is, and how much it costs.
- Now total up your expenditure and subtract it from your income. Providing you are left with a positive number, you’re doing fine. If, however, you’re left with a negative number, you should address this immediately as it means you’re spending more than you’re earning. You could do this by cutting back on ‘non-essentials’, for example.
This is pretty much your budget, and providing you can stick to it and spend less than you earn, you shouldn’t run into any financial difficulties – such as debt.
Frugal thoughts
It’s worthwhile, if you’re left with any money after covering your essential expenses, to save it. Thinking frugally like this will really help you keep a strong, controlling grip on your finances. Money you save can be used to cover any emergency expenses, for example, or for a treat.
And making small changes to the way you think about money can make a huge difference to your finances. By just thinking frugally, you could slash your costs and avoid falling into debt.
For example, switching the lights off whenever you’re out of the room or making sure all electrical items are unplugged before you go to bed can help you reduce your outgoings.
Keep it cheap
Finally, probably one of the easiest things you could do to protect yourself from debt is to make sure you keep whatever you do cheap.
To elaborate – this basically means making small lifestyle changes to save money. So, when you’re next out food shopping, go for the cheaper/non-branded equivalents rather than the more expensive / branded ones. This may only be a small example of what you could do, but by employing this ethic to all aspects of your shopping, the savings will soon add up and you should find yourself in a more comfortable financial situation than before.
Guest post written by Hanna
I’m trying to think as frugal as possible, getting as many coupons as I can find and cutting spending wherever I can. I’m bringing my own tea to work to avoid Starbucks. I now have a clear budget on what I can and can’t spend my money on.
Being cheap is great for saving. 🙂
Once in a while you can have a treat.
Several years ago my wife and I had no budget and juts hoped we didn’t spend more than we made each month. We took a hard look in the mirror, and our finances, and put together a budget. I have a spreadsheet of our monthly expenses. I have it on Google Documents and it’s shared between myself and my wife (I don’t think she ever looks at it though). Keeping track of each bill when it’s paid and has cleared our bank account has helped us tremendously. Over this past year we paid down $10K in debt!
Plan ahead. Think about any upcoming events, that might involve travel or gifts and factor that into the savings plan.
A great post — I find writing down income/expenses helps visualize where the money is coming and going really easily. At that point, you can move forward and solve any debt problems.
The only budget one has to follow is Spend Less Than You Make. There are very few folks who make a budget and follow it through all their life. Most follow it for a month or two, then they don’t even remember they had a budget.
Some create fancy sheets in EXCEL and when the computer crashes, their budget crashes too. That’s the extent of their budget.