The earlier you learn the basic skills of financial management the more chance you have of avoiding the problems of debt that is such a factor in American society today. It does not mean that debt collectors are knocking on everyone’s door. However too few have proper retirement provisions and too many have significant credit card debt which results in their paying too much interest; it is a waste of their money.
As a matter of absolute priority you should have a budget which includes all your financial transactions, income and expenditure and a strategy to ensure that you have a surplus each month for use in providing for your future, including an emergency fund and retirement savings. There is never an excuse for delaying this exercise. Bad habits do become difficult to break.
What are those bad habits and signs you might be in trouble or heading down the road to trouble?
Establishing a Budget and Sticking to It
If you do not know where you stand you will never know what is affordable and what is not. Every business needs a budget and good management information in order to make good decisions and it is no different for individuals and families. The figures will show you where there are potential problems and whether you are in a position to save regularly. If for example you have credit card debt you will be paying a high rate of interest on balances. If you are just paying the minimum the company requires each month then you have a debt that won’t go away without your action. Often a cheaper personal loan to pay off such debt is the way ahead with the new installment monthly payment replacing the previous payments you used to make in your expenditure column. Today’s breed of online lenders are likely to approve any cash application from people who can demonstrate their ability to repay by installment for the full term of the loan.
There is short term pleasure in buying something new but that pleasure surely fades if you realize that you have spent more than you needed to, and more than you can really afford. The short term pleasure which may simply be to keep up with neighbors or friends becomes meaningless if the result is that your finances are getting out of control. You can keep your automobile a little longer can’t you? You may get excellent value in the second hand market and the car will not lose value immediately after you drive it off the forecourt.
When you have no plan and use your credit cards regularly you can be in fact overspending. Whether you are withdrawing cash at an ATM to support your daily life or using it for purchases without paying the balance at month end you are slowly building up financial problems for yourself. It is a difficult habit to break but break it you must. You will be living from one pay check to the next and that cannot be good for your future.
No one will help you if you fail to put money aside for your retirement. Average Social Security benefits are nowhere close to being able to provide for a comfortable retirement. As people live longer, and surely you hope to do so yourself, the pressure is on even more to be able to live all these years in comfort? Medical bills are still likely never mind the increased costs of everyday life.
The unexpected does happen, be it a medical bill, an auto repair or a household problem. Ideally you should build up an emergency fund, at least the equivalent of three months’ regular expenditure, so that you will not have to resort to looking for an expensive short term loan or adding even more to your credit card debt.
A great deal in financial management is common sense and breaking bad habits. It does not automatically mean making sacrifices. However one thing is certain. If your bad habits remain then there are certainly going to be sacrifices once you reach retirement age because you will not be able to buy the things you need.