Managing Your Debt

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Sometimes at the convenient store I watch people purchase lottery tickets. I listen to their comments about what they would do if they won. Even though they know the odds are not in their favor they continue to play. The expectation is they could pay off all their debt, buy anything they wanted for cash and never have to worry about money again if they won. But studies involving lottery winners show this is not true. Most are broke within a few years. The reason is they did not know how to manage their money.

To manage debt you have to manage your money. It is so simple, spend less than you make but it’s so hard for most of us to do. The foundation to managing your finances starts with good communication and a budget. For the single person there is no one to discuss things with. But with couples opposites do tend to attract. Often you have a saver married to a spender. You might think you have a lot in common but after being together for awhile you realize how differently you think when it comes to money.

Financial problems are one of the major causes of conflict in relationships. Instead of the couple working out a system that is acceptable to both of them, they each cling to their way of doing things. Sometimes the spender hides purchases from the saver. The saver feels threatened by the spending and wants to save even more. Couples have to be open and honest with each other and willing to compromise to successfully manage their money.

Many times you hear people say “I don’t know where all my money goes.” For many of them this is true. We know what our big payments are:

  1. housing
  2. car
  3. credit cards
  4. student loans

But it’s the little things we spend money on that we lose track of. The best way to know exactly what you are spending money on is to keep a journal of all your purchases. Often people are surprised at how much money they waste. You have to know what you spend for certain items to make a budget.

Think about your basic needs first:

  1. housing
  2. food
  3. clothes
  4. automobile

Some expenses, like rent, are the same amount each month. Other items you have to estimate. You need to allow for utilities, insurance, gasoline, entertainment, vacations, holidays, clothes and those unexpected emergencies. Many experts recommend that you build saving and giving into your budget. When you compare your monthly expenses to your monthly income you will either have enough money to pay your bills or you will be short.

If you have sufficient income to pay your expenses that is wonderful. But if you are short, basically you have two choices. You can decrease your expenses or you can increase your income. Both of these can be hard to do. You should never rent an apartment, buy a car or make any purchase if you can not handle the payment. So many times individuals buy with credit and continue to increase their total debt when there is little possibility of increased income to cover this.

The big ticket items like houses and cars usually have to be purchased with credit.To manage your debt means to have payments you can afford and money left over each month for emergencies. Sometimes we pick our houses and our cars because they are status symbols in our society. The need to feel successful is often greater than the need to spend money wisely. We live in neighborhoods and drive cars we can not afford because we are too insecure to admit our vanity. Managing money is usually more emotional and psychological than common sense. We live beyond our means so that we can fit in.

Managing debt means not buying more than you can afford. It means saving your money to pay cash instead of buying things with credit. It is accepting that you can not have everything you want today but rather to plan and save for future purchases. Managing debt means having good credit scores which you get by paying your bills on time and keeping money in savings so that emergencies do not wipe you out. When you manage your money you have extra funds to reach out and help those less fortunate. As your pay increases you do not have to increase your standard of living but put the difference in savings instead. If you make and follow a budget based on what you can afford you will be successful in managing your debt.

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