Wednesday, September 30, 2015

Avoiding Debt

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We live in a consumerism world. Often times we are like little Veruca Salts, demanding we want it now and don't care how. We want the same standard of living now that our parents worked 20-30 years to attain. We justify our reasons for needing to go into debt for various big purchases. We add little subscriptions and monthly commitments here and there until they all add up to one overwhelming sum. We look to the future and count incoming and projected incoming money as though it were here today, and foolishly count that same money to justify several different purchases.

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The borrower is a slave to the lender. This is not only how debt feels, but how debt is. As soon as you put yourself into debt, you no longer have a choice of what to do with that income--at least not a choice that doesn't come without harsh consequences. 

Some debt is justifiable and even necessary. Most people will go into debt to get a home. While this is common, it doesn't mean you can't still be wise in your debt. Do not purchase a home that makes your budget too tight. Many people will need to go into debt to attain an education. Again, you can be prudent and wise. Do what you can to earn scholarships. After that, be wise in where you go to get that education. Do not spend more on school than you must. Many also will go into debt to get a reliable car. Again, be wise. Be sure you are getting the basic needs met and not your wants. There is great peace in having little hanging over your head. For our family, we have only a house payment for debt. There have been times we have had more than that, and while we haven't had overwhelming debt, anything more than just the house for us has felt confining. Trust me, the peace of little debt is much stronger than any satisfaction you will get from the long wish list you have.

How Do You Avoid Debt?
The trick is to spend less than you make. Not the same--less. You want to be able to save some money so when those surprise big expenses happen, and they do happen, you have some money to use to pay for those things. This is the real world. Appliances will stop working. Tires will get flat. Cars will die. Jobs will be lost. These things can and do happen. If you are wondering how much to save, here is a link to a calculator to figure out how much save. You input your info and it tells you how much money to save.

In order to spend less than you make, you have to A) Know what you are making and B) Know what you are spending. This will take some writing or typing things down. Track what comes in and what goes out. 

Once you know what your flow is and where you stand, decide what, if anything, needs to be cut so you can manage on what is coming in. Do not add fixed expenses unless you know you can pay for them and still have some money left over. 

Another trick is to temper your wants. Do not let your wants cloud your judgement and talk yourself into turning the wants into needs. How much stuff do you own that just sits around? How much do you want to get rid of because you are surrounded by too much? Keep that in mind as you are deciding to spend your money. Some purchases are things that will be of great value long-term. Other things are just not worth it in the long run. 

A great way to avoid debt is to set financial goals. Write down a wish list of big purchases you want, from home upgrades, to vehicles, to vacations. Whatever you can think of. Write down how much each thing will cost. Prioritize them. Figure out how long it will be before you will have the money for the item (this will probably be a big shock to you). Any time you want to buy something, ask yourself if you want it more than you want the next item on your wish list. 

There is great satisfaction in saving for something and paying for it upfront. When we went to Southern California last year, it was a very expensive family vacation overall. We decided we wanted to go and saved for a couple of years. The children knew this was our main financial goal. Anytime we were out shopping and they asked for something, I would ask them if they wanted that more than a the trip. They wanted the trip. We taught them that everything adds up over time.

We went on that trip without going into debt and we loved every minute of it. There was nothing hanging over our heads like a doomsday warning that this was going to hurt later. It is harder to give things up after the vacation happened than it is before. You are more willing to sacrifice for a future event than a past event. Plus, any time you are paying for something after the fact, you add interest to the item and it becomes more expensive. You know what they say, you don't want to pay interest, you want to earn it. 
"Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.” J. Reuben Clark
What if You Are Already In Debt?
When I was in college, I took a finance class that was fabulous. One of the main things I remember from that class was how to pay down debt.

You start with your smallest debt. You do everything you can to pay that off. Then you take all of the money that was going to that debt and put it toward your next smallest debt. Once that is paid off, you take all of the money that was going toward that debt and pay the next smallest. You keep going until you are done. It really helps to have fewer loans to worry about and focus on. 

An obvious thing is to cut all unnecessary expenses. This is a time to commit to cutting back on some luxuries in order to get yourself out of debt. Once the debt is gone, you can add the luxuries that you actually can afford and want most. 

I know this stuff always makes perfect sense when you are sitting reading about it or in a classroom learning about it. It all makes logical sense. When you are in the heat of the moment and faced with some good deal or beautiful item to purchase for your home, that is when the rubber meets the road. I love the quote:

"All too often a family’s spending is governed more by their yearning than by their earning." 

I know this is all easier said than done. It is hard to turn away from things. The reality is that debt is a taskmaster. It brings great stress into your life. It prevents you from being prepared for the rainy day that is sure to come. 
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1 comment:

Sherin C Mathew said...

Hi, I thought Dave Ransey's Financial Peace helped us a lot to get this level you were talking in your blog. He has numbers and idea based on your income to follow this principle of no-debt except for house.


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