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11 Reasons Why You Stay In Debt

11 Reasons Why You Stay In Debt
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According to the Federal Reserve, 43% of Americans exceed their income with their spending habits. This means that 43% of people are going further and further into debt each year and racking up interest charges at an alarming rate. They might as well be burning their money.

Many people never even plan on paying all of that money back, citing bankruptcy as their way out.

Here are 11 ways you are staying in debt, and what do do about it.

1. Your expenses are too high

This one is obvious. If you have backed yourself into a corner by amassing a huge house payment, huge car payments, large insurance premiums, and other gigantic fixed costs, then you are never going to have any money to pay down your debt.

If you want to pay your debt, you must reduce your expenses. Get a used car. Downsize to a smaller house. Shop around for insurance. Cancel recurring subscriptions. Question everything. Do anything you can to lower your expenses so you can begin to put that saved money towards your debt.

2. You have no additional income

If you only have one source of income, odds are that you base all of your expenses on that.

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The secret to being able to save money and pay down debt is doing things on the side that you enjoy that will also make you extra money. Pick up freelance work that can make you an extra few hundred a month.

You can then leverage this money to build a side business, which can turn into an enjoyable way to get extra cash flow to begin paying down your debt.

3. You have no picture of your money

Do you know where your money goes each month? If you look at your bank account and just sit there wondering, “What did I spend all of that on?” then you have an issue.

Sign up for an automated financial tracking site, like Mint.com, to get a better idea of what you’re spending where without having to do all of the manual work of balancing your income and expenses. This can help you perform a detailed analysis of where your money goes, and make changes based on the results.

4. You don’t take advantage of technology

The technology that exists today is incredible. You can literally pay your debt on autopilot. All it takes is a few minutes to set up an automated transaction to your creditors each month. You’ll find ways to adjust.

Couple that with a little bit of extra money on the side towards your debt, and you’ll have it paid off in no time.

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5. You use your time poorly

How many hours a week do you work? 40? Do you do anything after work to make extra money? Are you furthering your education to increase your worth? Are you networking to increase your level of influence?

Expenses, if left alone, will almost always increase over time. If you’re not using your time wisely, you’ll never increase your ability to earn more to keep up with those expenses, keeping you at the same level of income and plunging you further into debt as your expenses increase over time.

Always be improving your ability to earn more.

6. You run a balance on your credit cards

Credit card debt is the absolute worst type of debt you can have, because the interest rates are so high. You can literally rack up tens of thousands of dollars in interest alone in just a few years. Yet so many people just view them as a way to pay for things without actually having to pay for them.

But the fact is, that minimum payment is going to grow and grow over time as you spend more, and you eventually won’t be able to get any more credit. At that point, you’re going to have to pay before you can buy anything else. That’s no way to live.

Use credit cards wisely. Only put items on them that you can pay off each month. The day you start to run a balance on your credit card is the day you start racking up hundreds of dollars in interest, and it’s hard to escape from the high rates of credit cards.

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7. You worry about everyone else

The quickest way to get into debt and stay there is to start worrying about what everyone else thinks of you. The fact is, not everyone makes the same amount of money, but everyone likes to try to act like they do.

Stop worrying about what the image your car, house, clothes, and whatever else says about you and just live the life you are able to without going into debt. At the end of the day, those things are just liabilities on your balance sheet, nothing more.

8. You don’t have a spending plan

Money is made to be spent, but if you do not have a plan for what you are allowed to spend it on, then you’re going to be throwing it around everywhere.

Sit down and think about what brings you the most joy to spend your money on, and allow yourself a guilt-free spending fund each month. Spend it on one or two things that bring you joy and cut it off there.

9. You afford things

“Affording” things is a very quick way to get into debt. Because when you afford things, you are only thinking about how you can leverage all you own to buy them. Unless it’s your house, only buy things you can pay off completely in less than two years.

Otherwise you’ll spend your whole life with monthly payments towards things that are probably worth less than you owe on them.

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10. You buy too many little things

10 bucks here, 20 bucks there, $8.50 there—it all adds up. It’s very easy to tell yourself that “It’s only $10. Go ahead and spend it.” But the problem with that is when you keep saying that day after day, eventually you’ve spent $300 on nothing but a bunch of little trinkets, snacks, and things you ultimately don’t need that will just end up in a yard sale.

Resist the urge to spend money on little things. You’ll be a lot happier with one high-quality, large purchase.

11. Your money is not working for you

With a boatload of debt, you’ll never be able to invest in anything.

At some point in your life, your money must make money for you, not the other way around. Instead of spending all of your money, save some of it to invest in assets that will make you money over time.

Learn about high yield savings accounts, stocks, real estate (that you quickly profit from), building businesses, and other forms of wealth creation. Eventually you’ll get to the point where all you have to do to collect money is sit back and watch the birds.

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Cody Wheeler

Cody is a self-improvement blogger at Academy Success, the place to learn life skills you don't learn in school.

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Last Updated on July 20, 2021

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There
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Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

Break Free of Your Finances

Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

Though it seems hard to believe, it is really very simple to get financial freedom.

To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

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Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

1. Stop Unnecessary Spending

We often spend money inwardly, instead of objectively.

For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

To stop this habitual spending, log down all your spending over the course of a month.

Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

2. Plan a Monthly Budget

This is a great opportunity to get serious.

Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

3. Cut-up Credit Cards

Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

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If not, you may want to consider ridding your life of the burden that credit cards bring.

Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

4. Increase Savings

There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

It’s good practice to save up to 15% of your income.

Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

5. Invest Wisely

Consider investing in funds.

Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

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Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

6. Invest in Gold

There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

Another way to invest in gold is through ETFs (Exchange Traded Funds).

These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

7. Stash Emergency Funds

Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

Make it hard to get your cash.

Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

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8. Find Fabulous Mentors

Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

9. Be Extra Patient

Patience is the key of financial success.

Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

Financial Freedom for All

Anyone can achieve financial freedom, regardless of their financial circumstance.

Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

Featured photo credit: rawpixel via unsplash.com

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Reference

[1] Hartford Gold Group: IRA Retirement Accounts

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