For some reason, tons of people find themselves in debt for whatever reason. Once incurred, this debt can prevent people from building wealth and reaching bigger life goals they want for themselves.
In some situations, debt is simply unavoidable. Many people have no choice but to incur some debt to get by. However, I think many if not most people get into debt when they really didn’t have to do so in the first place. At least, not to the extent that they do.
Here are 5 tips on how people can avoid going into debt in the first place:
1) Be very careful when selecting a college and taking on student loans
Now, for many people student loans are a necessary part of going to college. I’ll maintain that an undergraduate degree is simply a requirement for many things these days and is probably what a high school degree was a generation ago. So given that a person really needs one (and should consider graduate school as well), it’s important to go to a school that will provide you with the education and marketability you need to make money and build a career.
Oh, and it will important to pay off student loan debt too. Really, to a large degree this is determined by both the ability of the person to build that career through employment, as well as the cost of the education itself. Finding that balance between cost and payoff is important in assessing the value of the education.
Hopefully, parents are financially literate themselves and can help. Otherwise, it’s up to a young person to make a wise decision on the choice of school. This plays a role in avoiding long-term debt and setting the foundation for a sound financial life.
2) Don’t worry about keeping up with the spending patterns of others
It’s a well worn saying, referring to worrying about what others have and do as “keeping up with the Joneses“. Well, there is no need to do so. Just because somebody else has a better home, better car, better clothes, and better vacations doesn’t make that person more successful or happier. That same person January not be saving much money and might actually be financing much of this life. Yes, with debt.
On the other hand, the person living a much more modest lifestyle might be avoiding debt and saving more money. Also, it’s a better way to get to financial freedom. It’s not like living a more modest life is a tradeoff, giving up a better life. Rather, it’s living a life that one has earned versus a life one hasn’t earned.
3) Know how you’re spending your money
To really understand your spending habits, it helps to track expenses. There are plenty of money management systems out there, with a slew of websites and apps out there to help you. Or, you could simply use a good old fashioned spreadsheet. Either way, it’s a good idea to understand your spending habits so you can see where your money is actually going.
4) Make sure your income exceeds your expenses
This isn’t always possible for everybody in every possible situation. There are times in life where this can be tough to do. However, we need to get past those times as quickly as possible. Figuring out the difference between what we truly need and what we want is vital to making this happen. Not to mention, it’s critical to wealth building!
5) Imagine not being able to retire
Yes, this is the case with many people. Unfortunately, very few people can work very late into life no matter what they think. The longer someone is in debt, the later in life that a nest egg can actually be built. It takes time and the power of compounding to really build net worth.
Wouldn’t it be much easier to have chance to have an easier time later in life. Being older and not able to retire doesn’t seem like a fun way to spend those years, when we have less energy to being with!
Readers, what do you think about these ways to avoid debt? Do you see these as being helpful guidelines and motivation to bypass debt and focus on solvency and building wealth instead? I know there are other tips people might have – please feel free to share