Debt is often unavoidable, but in these uncertain economic times, it makes sense to avoid debt wherever possible. The problem is, we live in a society where instant gratification is the norm. If we want something, we buy it. It doesn’t matter if we can’t afford it because credit is readily available. But whilst this might ensure you always have the latest gadgets or fashions, it also means that you are probably massively in debt. So if this sounds like your current financial situation, here are some tips to help you stay out of debt.
Identify Your Spending Habits
I bet like most people you are blissfully unaware of where you spend the majority of your income. You probably blow hundreds of dollars on miscellaneous items without even realising it. This is fine if your name is Bill Gates, but for the rest of us, reckless spending is a seriously bad idea. To avoid debt, you need to take responsibility for your spending. Write down every little thing you spend your money on and then you can see where you can cut back.
Draw Up a Budget
Maintaining healthy personal finances means walking a line balance between income and expenditure. If your expenditure exceeds your income, you will soon be in debt. Yes, it really is that simple. So look at your income and work out what you need to spend on the essentials every month. Then you can see what’s left over.
Avoid Heavy Expenditure
Big debts include buying property or an expensive car. Sometimes it is worth getting into debt to invest in property, but if you have any concerns that you are overstretching your finances to buy a home or a nice car, rent rather than buy or downsize your aspirations.
Learn How to Live a Frugal Life
You don’t need to surround yourself with expensive acquisitions to be happy. It’s perfectly possible to live a frugal life and be content. Instead of shopping in upmarket stores or buying new clothes, look for goods in discount outlets or buy second-hand.
Pay Down Debt
Excess income should always be used to pay down debt. It really is the smart thing to do. There is little merit in squirrelling away money in a poorly performing savings account when you have outstanding balances on credit cards and personal loans. Instead, pay off your debts and reduce the amount of interest you have to pay.
Build a Nest Egg
Savings are good. Once you have paid off your debts, start saving to build a nest egg so you are covered in the event of something unexpected or unfortunate happening. You can’t always see what’s around the corner, but the better prepared you are the less likely it is that you will need to borrow money to pay for it.
If your personal finances are complicated, it is worth consulting with chartered accountants in Toronto, as they will be able to look at your individual circumstances and tailor their advice accordingly.