While many people believe that staying out of debt should be their ultimate financial goal, instead it might be wiser to focus on how to manage a certain level of responsible debt that goes along with living a happy, enjoyable life.
Sure, along with debt there is the added expense of interest and the potential for abuse. However, if you take financial responsibility and proactively manage your debt, you can avoid getting into debt trouble.
Know Your Financial Strengths and Limitations
Staying out of debt isn’t just about creating and following a budget. Too many people develop a budget they never use. They have the highest of hopes at the start, but then either they don’t have the proper discipline or something unexpected happens.
If you are someone who finds it difficult to track your income and expenses on a regular basis, budgeting may not be the solution. Instead, you need to understand your financial strengths and limitations.
Perhaps your strength is making money. You have a regular full-time job along with one or two extra side jobs. That’s great. However, your limitation may be you like to spend your extra income on luxury items. In fact, that might be why you first picked up a side job.
As long as you pay cash for things, you’re less likely to run into debt trouble. Where many people can run into trouble is when they find they spend more as they make more. From there it’s an easy step to buying everything on credit.
We’re not talking about using credit to buy large ticket items like a car or home. Though if you can pay cash for those items, even better. It’s when you begin using credit for everyday things, like clothes and electronic toys that can cause problems.
Why spend more for an item by racking up unnecessary interest charges or late fees? It’s better to delay the purchase and pay cash.
Saving for a Rainy Day
A big part of managing your finances and staying out of debt is making sure a portion of your income goes to savings. Here are three savings strategies to help you manage your money and stay out of debt.
- Save for purchases. When you use a credit card to make a purchase, you then create a monthly payment. A better option is to set aside the amount you would pay on the credit card each month until you have enough money to pay cash for your purchase. It will be less expensive in the end because you won’t have to pay interest.
- Save for emergencies. One of the biggest mistakes that people make is to forgo emergency savings in order to have more now. If you don’t already have a plan in place for saving money for unexpected major expenses such as medical or auto trouble, start a savings plan. To make it easier, have the money automatically deducted and deposited for you (ING offers a good option) and you’ll never miss it as your savings account grows.
- Save for your future. Anyone who works for an employer that offers a 401k plan should take full advantage of this great savings tool. This employer-sponsored retirement plan offers you the opportunity to set aside a portion of your wages before taxes. Additionally, many employers contribute a portion to your account. No, you can’t touch it before the age of 59 ½ without paying a penalty along with the deferred taxes. However, if your goal is to stay out of debt now and in the future, you will need to have money for retirement.
One last tip for staying out of debt: look for the most economical ways to save money. Cut back on monthly expenses, learn to do things yourself, shop for discounts, and use coupons – all practical and logical ways to conserve.
Whether you wash your own car and change the oil, or shop at a discount warehouse store and stop drinking lattes, there are plenty of actions you can take to stay out of debt.