10 Tips On How To Avoid and Recover From Financial Troubles
Different people have different financial problems. The cause of most of these financial problems is said to be due to poor planning, overspending, business failures, family problems, losing a job and the list goes on. Though any of these issues can be a source of someone’s financial problems, the root problem is much more basic. The truth is that most of people’s financial plans are totally disorganized. If you can figure out your bills, how are you going to pay for them in time? You may end up having bigger problems if a creditor or a taxman requests for financial information from you and you do not know where to get it. You can avoid getting in financial problems using the ten tips we have listed below.
1. Come Up with a Realistic Budget and Stick to It
It is important to come up with a list of all your expenses against you net income. This will enable you to occasionally check your budget against your actual spending and be able to readjust your figures and your habits of spending accordingly.
There are people who might not have a clue on the steps they can put a solid budget plan. The steps below will help you come up with a realistic budget that will help you get to where you aim at.
2. Calculate Expenses
You need to figure out how much you are spending each month. You can do this by consulting your financial files, receipts, and bank statements. Though there are certain types of expenses which are intermittent such as insurance, it is advisable you calculate an average for six months to a year to get the most accurate financial picture. Get the total of everything you spent for the previous six to twelve months and divide the total with the number of months.
3. Determine Your Income
After figuring out the total amount that will enable you to stay afloat in a month, you will now have to determine your actual income. Apart from your normally salary, try getting an accurate picture by adding any extra funds that usually come your way throughout the year and never forget other sources of income such as dividends, rental income, alimony, interest and child support.
4. Set Debt Pay and Savings Goals
You need to find out if you have any budget shortfall or overage in order to be able to determine realistic debt and savings pay off goals. You can achieve this by subtracting the monthly expenses from your monthly income. If you are making more money than you are spending that’s. The extra amount can be earmarked for paying off your debts or saving. However, if you discover you are spending more than you are making, then it is time to do some reduction on your expenses in order to have something that you can save and avoid getting into further debts.
- Track Progress and Record Spending
Recording all your expenses and income is the best way you can always stay top of your budget since it will make you to always think before splurging.
- Always be Realistic
Try as much as possible to stick to your budget most of the time. This will help you attain your financial goals. You can still break your budget provided you recover immediately.
- Never Impulse Buy
When you see something that you did not plan to purchase and you don’t actually need it, please don’t purchase it. Take some time when you are back home and think about it first. Here are ways in which you can always use to avoid impulsion.
- Stick to the Time Rule
There are people who will define this as a one-hour rule and others who will consider it as a 30-day rule. Never be in any form of rush. When you see something that you have some interest in, try taking some time to think about it before making a purchase. The longer you can wait the better.
- Never Shop When Upset
It is always easy to look for a product that will cheer you up whenever you are unhappy. It can either be clothing, food or something else.
- Consider Changing Where and How You Shop
From my personal perspective, I really enjoy shopping online. Yes, it always easy to ignore the extraneous items. However, am sure if I keep on shopping from a store, I will always get something that I hadn’t planned for and feel like I really need it.
- Never Shop with the Wrong People
If you are shopping with the impulse happy friends, they will always try convincing you that all the outfits you try are great and you should not leave them behind. In case you have to shop socially, try doing it with individuals who have frugal spending habits.
- Always Give Yourself a Splurge Budget
If you allow yourself some discretionary spending, there are chances you will less likely make big impulse purchases. Whether you are creating a budget for a single clothing item in a month, allowing yourself a fancy coffee every time isn’t that bad provided you had some allowance on your budget.
- Try Buy Things You Can Return
In case you have some problems with impulse buying, always try to purchase from the stores that have return policies.
- Never Be Fooled By Sales
Sales having huge markdowns will always make impulse buying very tempting. Always have a category of items you need to purchase on a list. Get the first category items, which are a priority, first.
- Ensure you keep a List of Things you Really Need
You can always buy them you have on the list with much confidence when you see them on sale.
- Never Give Yourself Access to Your Money
Whether it is freezing you credit cards in a block of ice or leaving them back at home, you can never make the impulse purchases when you do not have money.
- Never Buy Something Just Because it on Sale
Buying a $400 item on sale for just $300 is not making a $100 saving if you had no plans of buying it. That is spending $400 unnecessarily.
- Get Medical Insurance if Possible
You can never avoid medical emergencies. However, living without medical insurance is trying to invite a financial ruin.
5. Only Charge Items you can Afford to Pay for Them
There are times when the future income never materializes. If you currently do not have the cash never charged based on future income. This might make you to pay for exorbitant interest rates, which might easily wipe out any savings you made.
6. Avoid Large House or Rent Payments
Obligate to what you can currently afford and increase you mortgage payments only when the income increases.
7. Avoid Guaranteeing or Cosigning a Loan for Someone
Your signature will always obligate you as if you were the primary borrower. You are never sure that the other person will pay in time. Below are other reasons why you should avoid cosigning for someone
- All Risk Yet Little Reward
You might co sign on a loan for a mortgage you will never live in or a car you will probably never drive. However, the liability will never change. You will be taking all the risk by co-signing in case the person fails or is unable to pay.. However, you might see an improvement to your credit score if the loan is repaid.
- In case the borrower fails to make payments, the lender will Sue you first
The lender will never care about the person who applied for the loan. In fact, the co-signer will always get sued first since their credit is always higher and they are more likely to repay the loan.
- You will have a lot to lose while the Person you are helping will be very happy
You signature will definitely make the other person happy since you have helped him or her out. However, that happiness might never last for long especially when the buyer’s remorse set in. To make matters worse, the person you are helping might be having a bad credit. So he or she will never be bothered much when the negative mark appears on his or her credit card.
- You can Easily Destroy a Family relationship or Friendship
One you have co-signed, it is your obligation to ensure the other party makes the required payments on time. Monitoring the repayments can really cause you lots of stress especially when you have to call your family member or friend to ask why the payment was never made. In case they stop paying, it can cause extreme strife on your finances and relationship.
- You are 100% Liable to a Loan That Might be of Huge Amount
When one fails to pay for the loan, the lender will definitely come for the co-signer for the entire balance.
- There are Chances you could Face Tax Consequences In case Debt is Settled
There are times when the lender might not be interested in going through the trouble of having to sue you and decide to settle the balance owed. This will definitely mean you will be having tax liability for the difference.
8. Try Avoiding Joint Obligations with Individuals Who Have Questionable Spending Habits
In case you incur a tax bill or a joint debt, you will be liable for it in case the other person defaults. Such liabilities are known to have outlasted relationship in most cases.
9. Never Make High-Risk Investments
Avoid making the high-risk investments such as investing in junk bonds, penny stocks or investing in speculative real estate. You need to invest carefully by opting for certificates of deposit, government bonds, and money market funds.
10. Try Get Alternatives to Spending Money
You can decide to take a friend for a picnic instead of taking her or him to an expensive restaurant in case he or she is celebrating a birthday. If someone proposes that you meet for lunch, try proposing if you can meet at a museum or go walking in the park.
Definitely, everyone experiences financial challenges and problems at some point. Luckily, when you feel that you have a way out, it becomes easier. You can be in a position to find your way out by yourself or might need someone to help you get a solution. The above steps will easily help you overcome your financial difficulties and problems and ease your stress. There are at times when your situation may be beyond the general help provided here. You can seek the services of a professional in case you are such an individual.