5 Traps to A Lifetime of Debt and How to Avoid Them

Stress, fear, depression and anxiety are just a few of the emotions associated with debt. If you have ever gotten into a little ‘gbese’, you know it’s not a nice place to be in. I doubt anyone would willingly get into a lifetime of debt, but you might be on your way, if you get caught up in any of the traps below.

  1. Spending More Than You Earn

Are you wondering why all the extra income from that new deal or salary increase, gets finished just as fast as when you were earning less? Well, Parkinson’s law states that ‘as income rises, expenses would invariably rise to meet it’. Your spending habits are determined by the percentages you spend. If your expenses exceed income, you will live a life of debt.

  1. Having No Savings

Having no savings is a recipe for disaster. Constantly living from hand to mouth exposes you to debt, if there’s the slightest emergency.

  1. A Wrong Investment

It is a common mistake to lose money when starting out in investment. Sometimes people lose their fortunes in a bad deal. It can be attributed to greed or just bad luck. Either way, investing your money in shady deals or with non-professionals could land you in debt at the speed of light.

  1. Obtaining A Loan Beyond Your Means

Loans can be used to improve your business or to fund capital expenses. They can be quite effective, if you have the cash flow to pay off. When people fail to assess their cash flow requirements, they end up with loans they can’t afford. Taking a loan shouldn’t be done lightly. It is not uncommon to find people who take loans to pay off other loans, creating an endless cycle of debt.

  1. No Insurance

You could be the victim of anything from a natural disaster, to theft or an illness. Regardless of how diligent you are with your finances, unforeseen events could greatly alter your financial stability. Without insurance, it is possible to lose years of financial prosperity overnight.

To avoid being trapped in a lifetime of debt, follow these simple steps:

  1. Improve Your Financial Literacy

Get financial advice, read books and talk to people who are financially successful and debt free.

  1. Track Your Income and Expenses

You can’t accurately improve what you don’t measure. You need to keep track of where your money is coming from and where it is going. There are simple apps you can use to trace your expenses daily. For example, Mint or Wally app.

  1. Spend Less Than You Earn

You should continually optimise your spending habits and look for effective ways to keep your spending below your income.

  1. Stick to A Budget

Observe your spending habits for about a month or so and then, create a budget and stick to it. This may seem rigid at first, but it has a long-term payoff.

  1. Save!

Savings are the most popular remedy for a rainy day. A financial rule of thumb is to have about three to six months of your monthly expenses saved. Although this might seem impossible if you are new to saving, you can start with as little as 5% of your monthly income and build up from there. You would be astounded by the amount you can save up in a year.

  1. Invest!

Save to invest. Don’t just save to save. Your savings can earn high interest rates, if you follow sound financial advice and invest in reliable vehicles. When starting out, you should invest in low risk ventures and structure your portfolio to avoid loss of your capital.

  1. Get Insured, Stay Insured.

It is important to get a form of insurance to protect your assets. Insuring your assets protects you from debt, especially when unlikely setbacks occur.

Conclusion:

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