It surprises me that there are people in my age, ie. 30s who regularly commit bad financial decisions and never get their debt under control. They live paycheck to paycheck and would obviously be living miserly the few days before payday, and then be living it large immediately after again. The cycle repeats itself and they seem to be ok with it.
Some obvious financial mistakes that I have seen people commit on a regular basis:
- No savings because they spend all that they earn.
- Spent more than they earn using credit cards and personal loans.
- Using one credit card to pay the bill of another one, or worse, using a credit card to pay off a bank loan – perpetuating and compounding the debt cycle and delaying the inevitable, ie. paying for what you’ve spent.
- Coming into a lump sum of money via inheritance, pay bonus, or a lucky day, and spending it instead of using it to pay down debts.
A lot of this bad behaviour can be tied to one single personal fault: buying crap that you don’t need, and spending extravagantly on food, on going out and on holidays that you can’t normally afford. Some part of it can be blamed on TV shows, and the ubiquitous lifestyle and fashion magazines pushing an ideal image of who you should and can be, what you should be wearing, what you should be doing, and where you should be doing it.
But another part is down to your willpower and self-image. I believe people who have a low self-image of themselves are the type most likely to need material props and crutches, and thus more susceptible to the manipulations of modern media.
So what to do? The top priority is to analyse your spending habits. This is hard so maybe it is more prudent to first analyse and modify how you source and move your funds around to support the lifestyle that you want.
- Have only one credit card and pay it in full every month. It can even earn you extra if you do it well.
- If you must spend on something expensive, don’t use the credit card for it if you know that you won’t be able to pay the full amount at the end of the month. Take out a short-term personal loan instead – the interest rate is almost always lower than that of a credit card. And make sure you can afford and meet the repayment schedule.
- If you have several bank loans, refinance and consolidate them into just the one. This will save you on interest.
- Always use extra money that you come into to pay down all of your debts.
Once you have those things above sorted, the next task is to confront the harder questions: can you really afford the lifestyle that you want on a monthly basis? Is your lifestyle worth the extra stress and debt? Must you have and do all those things to be happy in life?
I understand that not everyone can be as fortunate as my family and I am to be debt-free. But if you aim to have just the one big debt in your life, ie. a mortgage, then I think it’s an achievable and noble goal. And speaking of mortgages, must you really live in that fancy apartment in an expensive part of town? Ah, but I’ve digressed. 😉