At some point in our lives, many of us will borrow money. This might be to buy a home, car or other goods. Retailers, banks, credit card companies want us to borrow. There are advertisements wherever you look, which are tempting you to buy now – pay later. Borrowing invariably is a bad thing, perhaps except for a mortgage to buy a home, and even then, great care must be exercised to avoid trouble.
Rather than buy now and then spend months or even years paying back the debt, with added interest, it is far better to get into the habit of saving for what you need. It is also wise to avoid being drawn into a world of ‘must-haves’, rather than actual need.
Financial experts will tell you that to stay out of debt because of unforeseen occurrences, we should all strive to save between 3 to 6 months of living expenses. If you lose your job or some significant unplanned expense suddenly comes along, you will be able to meet that without borrowing.
When you get in the habit of saving, you are less likely to impulse buy even if you have plenty of available savings. How many of us have bought something, especially on credit and then realised we didn’t really need it? Far too many, I’m sure. The act of having to withdraw real money from savings accounts that you have worked hard to build up is far more thought-provoking than handing over a credit card.
A savings mentality certainly has worked for me. It’s sadly taken a long time for me to develop, but now I find it easier to consider every purchase more carefully than before, and as a result, spend less. It’s also good to plan ahead for major expenses, for example, a car. What will your next car cost and when will you need it? Start saving now every month, and put the money in a separate account, if that is safer for you not to spend it. Effectively, you become your own bank or credit card company and think of the interest charges you will avoid.
I try to view things this way. If I have to borrow a pound, I now need two pounds in reality, excluding interest. One to pay back the lender and another to replace the one spent. This mindset has helped me to look at things very differently. Retailers tell you that this car is yours for only £199 per month or this TV for £30. Look away and ignore those messages. Plan your own financial future and don’t be part of theirs.
One of the best things you can do is to budget. Work out exactly what you spend and what comes in. Look for areas where you can reduce expenditure and possibly increase income too. Be honest. Even £1 per day adds up to £365 a year and if that was in savings and not frittered away on some small daily item look at the value. In fact, it’s a good idea to put expenditure into yearly terms and see how much even small value things costs. If you’re struggling to cope, those little savings can become huge in your plan to avoid debt or get out of it.
Warning: If you are having serious debt problems, seek out debt charities or government agencies to give you impartial advice and not those who might profit from your predicament.
See also my post – Should I Get a Credit Card