Why do you have debts around you?!
If you can answer accurately, then I will admit that you have full knowledge of your personal finances, outright.
That’s so, because, it is the most important part in mastering debts. You can never be debt free if you don’t know what actions encourage debts in the first place.
This is exactly what we will be discussing in this post. We will be laying down some of the best personal finance ideas to avoid debts completely.
We will learn how you can live independently of debts and, therefore, never feel the need for borrowing money, even when you hit the darkest of all financial roads!
Your income sets your limits, and not your credit cards:
Call this an idea? I do!
Many people believe that their spending behavior is monitored by credit cards and not by the income they have. It can be true only up to a certain extent, but definitely nothing beyond.
Life has its own few rules. And, you will have to abide by them.
Getting something on credit might have become a rule these days, but, the number of debtors have also increased noticeably.
Now, do you want to be among the debtors? Or, stay on the brighter side and live without any financial bindings? This is totally up to you!
But, here’s the golden line.
You should touch those, that can be included within your debit line, and not your credit line.
If your debit line can afford it, then there’s no issue in buying anything with a credit line.
These times, credit cards come with many rewards points and also offer significant discounts on purchases. Then, why not make full use of them, when you have the opportunity.
The only thing is, credit cards are to be used only as a mode of purchase, but not as a dependability!
I am talking so much about credit cards because they have become the highest concern regarding public consumer debts.
Credit cards can only become a good debt, if you use it responsibly, as I have just explained above, under the golden line section.
And, this brings to my next most important idea, or rather a thought.
You should be able to distinguish between good debts and bad debts, and take decisions accordingly:
Debts make up quite a great deal of a country’s economy. If people, corporations, and government stop making use of debts, then the economy can’t function well.
That’s because debts keep money circulation steady. Hence, being a part of our country’s economy, you should understand the responsible use of debts.
By responsible use, you should learn to take up good debts, instead of getting surrounded by bad debts.
Good debts are those that have a positive return in the future. These debts can be a mortgage loan for a property that has an appraisal potential, or a student loan for a field of study where success is promised, and so on.
Bad debts, on the other hand, signify no profit potential in the future, or anything that only increases your expense boundary for no good reason. These debts usually arise from wants, rather needs, and can also result from misuse of good debts.
Your personal financial planning should definitely include good debts as a vital part. Remember, without good debts you can’t expect your finances to flourish.
Good debts can also mean investments. There are many investors who play with debts, so as to get high returns on minimal investments. It’s better you consult a financial advisor to figure which debts can be used as investments.
But, always beware of consumer debts. These debts are what we typically call bad debts, and include credit cards, payday loans, unpaid utility bills, social debts, and typically anything like these.
Hence the best personal finance idea is to avoid bad debts at all cost, and focus on building your net worth by using good debts responsibly.
You should however understand, that moment has its own calls, and you need to hold yourself back from making costly decisions and incurring big amounts of unethical consumer debts. These debts have nothing good about them, and will forever be bad!
Don’t omit the old school thought of having a handy personal budget:
Your personal budgeting technique should dominate your finances.
If you don’t currently have a budget and rely on impulsive spending behaviors, then you have got it all wrong.
Debts can only be kept away if your personal finance has a top-notch budgeting idea.
A budget that has room for day to day expenses, savings, and investment portals, is exactly what you need.
I, as a tip, will always advise you to utilize the zero-based standard budgeting, where you will have a detailed list of all the probable expenses for the month. Your list will also have space for debt payments, and savings, in case you are wondering!
The aim of zero-based budget is to equalize your income into your expenses and savings. Once the expense list is complete, you will subtract the total expense amount from your income.
Then the remaining amount can be put down to do extra savings or investments, as per your wish!
In the end, you should be able to utilize your whole income fruitfully!
If a zero-based budget is feeling a bit complicated, then you can switch to the envelope system, that will have envelopes for each expense category, and one especially for savings.
The idea of first saving and then spending is probably the most important of all:
This is the last point I’m about to discuss. Eventually, there’s nothing to discuss though. This is a very old saying that’s been here for ages.
The saying goes that you should first keep aside money for savings, and then do the spending part with whatever’s left!
But, we are the children of today, and the last thing we do is savings.
And, let me remind you this again and again, that you can never have financial prosperity if you don’t give the first priority to savings!
So, follow a budget, as discussed earlier, start doing enough savings, and avoid doing unnecessary expenses at any cost.