Applying Commonsense To Personal Debt And Finances
Getting Off The Debt Treadmill
Many people are struggling under the burden of debt and are having problems bringing order to their finances. Arguments between spouses increase, as do stress levels. Often, they may feel they are on a treadmill, barely maintaining their current positions but making no progress at all.
If this sounds familiar to you, you might find it interesting that there is a way to apply common sense to your situation and bring both your debt and your personal finances under control. It isn’t an instantaneous fix and it will not be totally pain free, but it will work where other personal finance plans fail. It also isn’t some new idea (although many may find the concept somewhat novel), but a return to how things were done for centuries. Simply put, it is the idea of not spending more than you earn.
You may not like the idea of living within your means, but that may be because you do not truly understand how it relates to personal finance. It is not eschewing all debt, nor does it mean giving up everything you love. It does not mean you must wear rags, make soup out of Ketchup, or never taste cappuccino again. What it does mean is that you take control of your personal finances and debt.
The first thing you need to do to take control of your personal finances is to establish a workable budget. List all of your normal expenses and how much you spend monthly on them. If you are like most people when they first tackle their personal finances, there are going to be some things you do not know. It is not uncommon for many people to have no clue how much groceries cost each month, for example, or how much is spent on clothing. It may be necessary for you to track your expenses for a few weeks to get a good handle on your personal finances. In the meantime, start with fixed costs, such as your mortgage, car or personal loan payments and include your best estimate for flexible expenses. You can always adjust these next month.
Include a line item in your budget for savings, something that is often neglected in money plans. Set some target percentage to save, since even 3% of your income is better than nothing. Over a period of time, gradually increase the percent going into savings until it reaches at least 10%. Savings accounts, when reserved for true emergencies, are an important part of personal financial security. They mean you do not need to pull out a charge card if the hot water heater breaks or your car needs a repair. This in turn means that you are not increasing your debt load.
Making the Bottom Line Black
To examine how you regard personal finance and debt, consider the following scenario. Your net monthly income is $3,000. Your total payments are $2,500. If you make a credit card purchase of $4,000 that requires a monthly minimum payment of $400, you still have $100 before you exceed your income. A lot of people will say that is a true statement. It is not, because you actually went $1,000 over your income and $1,500 over what you had available to spend that month. There will be times when you have no choice but to charge something. Just keep in mind that in personal finance, it is the debt, not the payment that determines the health of your financial situation.
Enlist the support of all family members if you need to bring your personal finances or debt load under control. Each individual needs to consider what is most important-a college education or designer jeans? Keeping your home after retirement or going out for a steak dinner every week? With just a little cooperation, you can make drastic improvements to your personal finances and reduce your debts substantially.