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10 Reasons Why You Are in Debt

10 Reasons Why You Are in Debt

If you are young, just out of college, starting a business, or starting a family, chances are that money is tight. Education costs dollars, as do building a business and creating opportunities for your children. Managing money is not always simply about noting how much money is coming in and what expenses you have. Money management is about your relationship to saving and spending and your attitude toward sharing your resources with others. Do you love giving to others? Do you share what you have or does it feel easier or safer to hold back, perhaps from a fear that giving means there is less for you? Here are some reasons for why you are in debt, along with some ideas and tips on how you can improve your relationship with the dollars, pounds, or euros in your wallet.

1. You haven’t realized that saving money is about creating new attitudes and emotional habits

Saving money is about creating new habits and attitudes. In reality, it has very little to do with the actual amount of money you have in your bank account. You can put aside money each month, but if you constantly overspend, you will end up borrowing from yourself and saving nothing. Rather than seeing money as a value in itself, consider what it gets you in relation to your goals and plans. Create an attitude that everything in your life is about moving towards your goals. The wealthiest entrepreneurs view money not as something scarce that must be guarded at all times, but as a tool or asset to help them invest in their goals and dreams.

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2. You haven’t worked out what is really important to you and what you value

Money is a resource. Resources can be wasted, misused, or directed to create even more wealth. What do you value? At the end of your life, what would you like to be remembered for? Working out what your values are will help you work out how to spend your money. If you love a hobby, then investing money in that makes perfect sense. How do you know what you value? Exercises such as writing a personal mission statement can be very valuable. Money is a resource like any other — move its focus to create the life you want to have.

3. You haven’t set up an easy-to-use budgeting system

Do you know right now if you are in credit or in debt? Imagine that you see a pair of shoes or a new tablet that you don’t need but would love to have. Would you know if you have enough money in the bank to cover the cost? Create an easy-to-use budget tool. There are some online, and often a notepad and pen works well too. Credit cards do have to be paid off and you will need to plan how much a month you can afford to contribute to paying these off. Debts don’t magically resolve themselves, so get to know your spending habits and ask yourself if you can afford all these items you want but might not necessarily need.

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4. You buy when you could just borrow or rent

You want to dig up a plant, so why buy a spade if you can borrow one from a kindhearted neighbor? If you need a big saucepan for a dinner party, why buy when you can borrow from a friend? We love to justify purchases by saying that the item will come in handy in the future. Yet, how many times do you really use it later? If you love a movie, don’t buy it, borrow it — the same goes with books. Think of all the things you own and have used only once or twice. Borrow or rent rather than buy.

5. You fall for those too-good-to-be-true, get-rich-quick ideas

Sorry to say, but it’s really true that success is normally 1% inspiration and 99% perspiration. Not everyone wins the lottery, so don’t assume it will be you. Use your time to create value that will last and give you pride and lasting returns on your efforts. Building a business or working up the career ladder takes time and effort, but the rewards will come. Get-rich-quick schemes work well for the people who create them when they convince you to part with your cash to buy into the dreams they are selling, but real wealth creation is a slow process.

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6. You have money-sucking (and life-sucking) habits

Where do you actually spend your money? What activities do you do regularly which cost money and return transitory pleasure? Most things are okay in moderation, but when you are spending money on smoking, gambling, drinking, or other bad habits, it’s time to think about changing those habits. Why do we spend our time and money on these activities? The simple answer is normally that addictive habits help us to avoid our feelings. If you are fed up with work, then a few drinks in the evening helps you forget that annoyance. If you are feeling bored, then some chocolate or cake can relieve that frustration a little. Gambling is an addiction which itself involves money directly. Though many gambling sites acknowledge that gambling is addictive and have put policies in place to help problematic gamblers, it is generally not in their interests to actively stop you from gambling. For any addiction, you should seek appropriate help.

7. You use credit to buy items you don’t have the cash for right now

It’s simple: if you cannot afford to pay in cash right now, don’t put it on your credit card. For necessary purchases such as repairs to your car or paying tuition or other costs, work out a payment and saving plan so you can see how much you need to save or can afford to pay each month. Don’t allow yourself to get into debt that you can’t get out of. Also, don’t borrow money from a bank unless you really need to. Banks will charge interest and often want to encourage you to take out loans.

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8. You pay retail prices on everything you buy

There are sales every six months and often you can find stores selling very good clothing or other items at discounted prices. An online search will direct you to goods with price cuts too. Many charity shops have started selling “seconds,” or clothing from last season. These garments are perfectly fine but since they are now no longer the most up-to-date line, they can be purchased at a reduced rate. The same is true of cars. Buy a brand new car and pay a higher price. As soon as it is driven off the showroom forecourt, a car is automatically significantly cheaper than a brand new one with very little difference in performance or condition.

9. You pay extra for labels or brands as status symbols

Consider two identical white men’s shirts. One is plain and one has that small blue polo player woven on it. Both are made the exact same way and in the same factory, but which is more expensive? The fashion industry makes a large chunk of money from our desire to be seen wearing a particular brand. Remember that you are lovable and wonderful as you are, without the need to have a name or label to confirm that. Think about purpose rather than about what others will think of you. Dazzle people with your wit and charm instead. Also, store brands are nearly always cheaper than national brands.

10. You think too much about today and not about tomorrow

We love advice like “Live life for today” or “Don’t put off for tomorrow what you can do today.” Of course, have as many experiences as life affords you. However, the money you have now can be set aside or invested so that in the future you will have a financial cushion. We also need to save for retirement and it is estimated that most of us are simply not putting aside enough for our futures. We are now living longer, and so the years post-retirement are increasing too. Think about what your money can create for you long term rather than the immediate gratification it can get you in the present. Think about your long term life goals and save now, whilst you have the opportunity.

Featured photo credit: picjumbo.com via picjumbo.com

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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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