Living in debt does not automatically mean a person is not contented or has bad spending habits. Life can be unpredictable, and there are varying situations that get people into debt.
Incurring debt can stem from a situation where all your life savings get sucked up by an ailment or bad business. It could be through borrowing property that ends up damaged or lost and then you have to pay for the value of the property. But Debts incurred by collecting a loan from friends, relations, or loan companies are more common. The latter usually attracts interest rates that increase the amount you have to pay back as time passes.
Debt is a part of everyday life, maybe not for everyone, but for many. If you have never been in debt, it is still important to guard against situations that can get you there. And if you already are, these tips below should you navigate your way out.
1. Never Buy on Credit
This seems like the most obvious tip but is not easy to stand by. Don't buy what you can't pay for on the spot, be it for personal use or business. Sometimes you're tempted to pick up a bottle of soda from a store down the road with a promise to pay for it on your next visit. But resist that urge. Instead, buy the soda when you have gone to fetch the money to pay. This is because small debts are the windows that give way to more substantial debts. Just as practice makes better for good habits, the same goes for bad ones. No matter how little, walk away from buying anything you don't have the liquidity to pay for or can't buy two times over.
If you are already in a situation of owing a creditor, you do not have any business buying what you can't pay for. Dedicate a portion of your income to paying back a substantial portion of your debt and the rest for upkeep. Also, don't borrow to repay. It's easier to manage debt to one creditor than to two.
2. Don't Spend More Than Your Income
Living above your means is one common way to run into debt. Spend according to what you earn, and try not to burn out all your income at once. In a country like Nigeria where the cost of living is high for the average minimum wage earner, it is important to analyze regular expenses and arrange them according to a priority level (from the most important to the least important). Knowing what is necessary to use your money for and what is not, can help you spend within your income level. Not spending above your income simply implies, don't buy a ₦20,000 outfit when your salary is less than ₦50,000. Learn to live within the capacity of your income; a ₦5000 outfit would be a more reasonable choice.
When you spend as little as possible from your income, it will give room for saving towards repaying a debt or just for saving. Exhausting all you earn in a short period, drives you to find more money to spend leading you into debt.
3. Spend Less on Your Wants and More on Your Needs
To achieve this, a lot of discipline is needed. Do not indulge the common urge to buy whatever you want just because you have the money to. If you hurry out of the face of impulsively buying something you want and don't need, you'll thank yourself later.
When you spend only what you need, it will help increase your capacity to save and savings fights debts. You can do without what you want, but not without what you need. You need food and water daily, but you don't need a pack of juice and snack daily. Learn to separate your wants from your needs and spend more on the latter.
- Invest your savings. Don't leave savings lying in your account without earning interest or without using it to acquire a low-risk asset that will bring profit.
- Don't borrow money at all, but if you have to, make sure you only borrow what you need and that your next income can pay it back. Also, if you won't take extra care of the property you borrow, don't borrow it at all.
- Buy your food and water in bulk. Bulk buying reduces costs more than we may notice. You make fewer trips to the market and get reduced prices for larger quantities. Also, the changes in market prices happen daily, you can take advantage of lower prices when you buy all you need at once.
- If you're already in debt, try paying back in large portions. This would shorten the time spent paying and reduce the compounding interest as the case may be.
- Don't spend money in your head before you receive it. The only money that has entered your hand is yours.
- Don't spend your last 2k if you don't have to. It is rather common to spend all your money and believes that more will come, but emptying your pockets is not the way to go.
- Be content with your financial capacity. Contentment is key to adopting good spending habits.
- Before you make a spending decision, think about it three times over. This gives you enough time to think over the need for what you want to spend on, and if it is a necessary expense at the time.
- Treat cash gifts as earned income. When someone gives you money you didn't work for, don't indulge in the yearning to give yourself a special treat. Save as much from gifts as you do from your salary or wages.
- Find someone with good financial habits who you trust, and be accountable to them about your spending pattern. You can't always do it alone and an objective opinion on your finances is likely to get you a better perspective.
Living debt free will boost your credit score and enable you to save. A load of worrying about interest rates or creditors' calls will be off you and you can begin the journey of building wealth.