The idea of struggling with debt in America isn’t a new thing. Neither is it a truly bad thing. It allows people and families to buy cars and homes, to have money for college fees and more. Plus, it also allows people to obtain items immediately and paid for them at a later date in future.
However, once you are knee deep in debt, it’s not very easy to get out from under it, and some people might even end up bankrupt.
Some reasons why Americans end up in debt
Same expenses with reduced income
Most of the time, when people suffer from a pay cut or reduced income, they tend to delay bringing their expenses down to equal their income. Generally, they would rather make debt to fill the gap. It’s very important to adjust to reality as soon as possible, whether it is only temporary or permanent because it’s better to stay afloat than to drown.
Yes, this is even worse than having a reduced income. Yet, with today’s economy, it is happening more regularly than ever before. Many people feel it’s just temporary and yes, you do deserve a break, although, you shouldn’t live in a fairytale world and not recognize the signs. Make sure your expenses and income are balanced before you land in debt so deep that you can’t breathe.
Over half of the population today are getting divorced at least once, others even more times. It’s probably the most expensive act that can let you drown in debt. Except for some couples that can’t even speak to each other without a lawyer present, settlements are one of the top reasons that push people over the debt edge. Then we are not even talking about the children’s emotional stress that may need treatment. However, this is a condition that is possible to avoid, but some just prefer to waste money.
Poor management of money
It’s essential to work out your spending budget weekly and monthly. Without one, you won’t know what the money is spent on, and believe me, you can spend hundreds of hard earned dollars on things that are unnecessary. Consequently, this may force you to buy important items on credit, which is the start of debt that can bury you deeper and deeper. By making this small change, it will surprisingly give you back control of your life.
Lapsed policies, tax, retirement and gaps in their coverage and alternatives that are costlier, falls under this category. Falling behind on payments to the IRS can end up costing a person dearly. Insufficient retirement planning may also prevent many from ever truly enjoying retirement.
Not saving at all or too little
The easiest way to avoid unwelcomed debt is by preparing for expenditures that can be unexpected. This can be done through saving. Saving only a tenth of your monthly income can make a huge difference when life brings you mountains to climb. It may help you to get a cushion in place. Thus, a divorce, job layoff or illness won’t immediately cause increased debt and financial strain. You will never be sorry if you have prepared savings for a rainy day.
No communication skills about money
You should always make a point to communicate about finances with your partner or spouse, as well as with the children. It’s important to keep these communication lines open, discussing spending styles and financial goals. If anyone in the family likes to spend recklessly, try and come to a compromise that will keep everyone happy and save. Honesty about debt is crucial in a marriage, as it is sometimes one of the reasons for divorce.
Don’t bank on any windfall
Only a fool will spend money before you receive it, even if it is very tempting. This can be with any additional job you have planned that can provide a bonus, or with an inheritance, you might get, make sure the check first clears before you start spending.
There are still people that don’t understand the way money grows and works, how they should invest and save for that rainy day, and also why it’s so important to balance a checkbook. Most of the time, this is not something that is taught in school and when parents don’t believe in discussing financial matters with their children, how must they learn. Thus, it’s your responsibility to find out how it works. Any mistake you make financially can turn out to be very expensive, as well as difficult to resolve.
Want to make your startup journey smooth? YS Education brings a comprehensive Funding and Startup Course. Learn from India's top investors and entrepreneurs. Click here to know more.