We are living in the “I can’t afford that” times. We think of the past and imagine simpler and easier days, and although we blame it on the changing-times, when it comes to our financial situation, we are the ones responsible.
We all know that person who lives short of money, always borrowing, always complaining about not making enough to get by; maybe we are that person. It seems that we live in a country where financial education doesn’t exist, and where debt and irresponsible spending are the common rule.
You are probably thinking “that’s not me”. But what if you’d identified those unnecessary expenses you could get rid off, in order to optimize your money?
Here’s five common behaviors that tend to leave us in debted:
Not having control over your expenses
If you usually give in to impulsive buying without taking in consideration everything you’ve already spent, you are making a big mistake.
There’s being bold and being reckless, and when playing with money, it’s easy to get burnt. It never hurts to keep in mind, or better on paper, a record of your monthly or biweekly expenses to know when you can spoil yourself. It’s not about having absolute restraint, but some products can wait for later.
You need to establish the things that you have to pay no matter what. All your fixed expenses like groceries, utilities; for some the gym, for others the car.
Once you’ve covered all your fixed expenses, and only then, you can consider getting those jeans you liked so much. Or maybe some extra beers on Friday night.
Credit cards are the most common cause of debt. If you think credit cards are a quick way to access money you don’t have, think again. Credit cards are tools banks designed mainly to put you in debt.
When applying for a credit card, or when managing one, never forget that you are supposed to pay everything you owe, if you don’t interests will make your debt grow quickly.
Most people think that by covering the minimum payments they are keeping up with their responsibility, but that’s the oldest trick in the book. By making the minimum payments, you are only paying for the interests, not your original debt which keeps increasing.
For this reason, if you use your credit card, even if you plan on making the minimum monthly payments with no interest, you have to plan ahead and make sure to pay your complete due balance. If the monthly payments exceed your financial capabilities, is better not to buy anything.
According to some financial experts, ideally we should save 10% of our total income, which means 5% out of every paycheck if we are paid biweekly. Others say that it’s best to have at least 6 months’ worth of salary.
This is to have a backup in case of emergency…emergency not being the latest iPhone coming out, or your best friend’s birthday, but rather unforeseen medical expenses or unemployment.
The truth is that saving 10% is really hard, let alone saving 6 months of salary, and those amounts probably wouldn’t be enough to cover for an emergency anyway. This is why we should have small investments to back us up against inflation and devaluation.
A small business, a second job or a property you can lease are great options to improve your economy.
Yes, we know not everyone has property lying around, but the point is you need to consider the possibility of something being wrong, the more dedicated you are to saving, the smaller the impact unforeseen circumstances will have on you.
Let’s be real: having cash in hand makes it really easy to give into temptation, and that’s another big mistake we make with our personal finances.
The next time you are going to buy anything, ask yourself if you really need it. If the answer is yes, then ask yourself do I really need it now?
Also keep in mind how much money you are about to spend, and all the other ways you could invest it. For example if you want get the latest album of your favorite artist, you’re probably planning on spending $200 MXN; instead you could use that money to pay for the dentist consultation you keep putting off, or maybe just add it to your monthly savings.
Lack of investment
Investing is the best way of planning for your future. There are many private institutions and governmental programs that help you start your first business venture.
You don’t need your life savings, you can get a bank loan to start a company, and use part of the new income to pay for it. Maybe you don’t have the entrepreneurial bone; for you there are options like Uber to get an extra source of income that runs itself. It’s quite accessible to get a new car and enroll it in these service platforms.
It might seem funny, but saving banks and informal loan clubs are actually great investing options. If you are organizing a savings bank, you get to charge the interests on the money you are lending, and all that profit is for you. Informal loan clubs guarantee you your savings for a determined date. It’s worth having your money invested, saved, or working in any of the investing options we mentioned.
When it comes to personal finances you have to be smart, and the more money you have, the smarter the decisions you have to take.
It’s great to earn your own money and spend it wherever you want. But if you make any of the mistakes we mentioned, you might end up hating being an adult, paying for never-ending debts, and not enjoying much of your money. It’s your call.