It is most people’s desire to live the American Dream; to be financially free, not live paycheck to paycheck and to feel successful
However, the American Dream can turn into a nightmare if you’re not careful.
Debt can creep up on you and take you down when you least expect it and when you’re most vulnerable. Going into debt is not necessary in order to be able to have the things you need and want. Repeat after me “Debt is not necessary!” However, it’s easy to get caught up in the trap of thinking you have to have it now, and oftentimes that means putting it on a credit card or taking out a loan.
Aside from an “I want” mentality, here are some other warning signs that you might be in danger of a lifetime in debt.
You Don’t Have a Budget
When you don’t have control of your money and finances, you are at risk of going into debt. A budget allows you to the freedom to tell your money where it’s going and opens the door to savings.
The key to staying out of debt, yet having the freedom to purchase the things you want and need, is being able to save up for them and pay cash.
You’re Living Outside Your Means
When you find yourself struggling to make ends meet every month, you’re living outside your means. When you have more going out than coming in, you are more likely to be tempted to go into debt in order to get the things you need or want.
You Don’t Have an Emergency Fund
An emergency fund is money set aside for, well, emergencies. You should have at the very minimum $1000 set aside for emergencies. It is best to have 3 to 6 months living expenses in your fund. Money for food weekends away and routine car maintenance are not emergencies.
You should have money budgeted for these things.
A true emergency would be an unexpected hospitalization, a death in the family, or a car accident. When you don’t have an emergency fund and a true emergency arises, you may be forced to go into debt in order to pay hospital bills or other expenses.
This is probably the biggest pitfall of all where debt is concerned.You Believe You Must Use Debt in Order to “Build Your Credit”. Your parents and grandparents have probably taught you that you must build credit so you can have the things you want in the world.
However, the truth is, you can have nice things without going into debt, including nice homes and cars. The “trick” is budgeting, saving and planning so that you can pay cash.
You don’t have to take out a loan or use a credit card, even to buy the larger items.
By knowing the warning signs, you can avoid the pitfalls of debt and enjoy living a debt free life.