dumbdebt – Personal Finance

If you don’t have the money…

you don’t buy it!

Written by R. A. Stewart

Borrowing money to buy things is spending money you have not earned yet and there is a price to pay for that and it is called interest.

The worst type of borrowing is consumer debt. This is stuff you have bought with borrowed money. Consumer debt is purchasing things such as household appliances, motor vehicles, and the likes. Going on holiday with borrowed money is consumer debt. It is also irresponsible.

As adults we must discipline ourselves to put off purchasing items which are pleasing to the eye but will leave us in debt if we break the budget in order to acquire whatever that may be.

I can say that I have never owned a credit card in my life. Who needs one?

If someone cannot make ends meet on their income without a credit card then they need to take a stocktake because the interest payable on credit will compound over a period of time. All that interest which has to be paid on top of the borrowed money is money which could have been put to better use.

What seems to be at the heart of a lot of people’s financial problems is their lifestyle. I mean if you are going to get involved in a relationship then you had better make sure your income level is sufficient enough to pay for it all and the same applies to having kids and it is no good blaming politicians for this child poverty stuff if your own choices got you in a financial mess.

So you are in a spot of bother, now what?

There are three options.

1 Increase your income; easier said than done if you have other commitments but no one knows your personal circumstances better than you so there may be a way to work around this.

2 Decrease your spending; it is time to find ways to cut back by reducing your wants and minimising the amount you spend on your needs.

3 Sell stuff that you no longer need. There are auction sites where you can sell your stuff. Make use of these.

There are some golden rules to follow when deciding whether to borrow for things like appliances and other items which may be consumer debt but are something which you need or will make your life considerably easier.

Ask yourself these questions:

1 Can you borrow the item?

This all depends on how often you are going to use it. If you need a mountain bike to get to work every day then you need to actually own one rather than borrow it but if it is a concrete mixer to do a one off job then borrowing is the way to go.

2 Can I purchase the item second hand?

You may not have the money to purchase something brand new but still can afford to buy it at a second hand store. This is a good option and you are still covered by the consumers guarantee act (In New Zealand)

3 Can I wait until I have saved the money for the item?

This option will definitely help you become a better money manager and also help develop the skill of prioritizing your spending.

4 Do I really need the item?

This all depends on your personal circumstances, tastes and preferences. It all boils down to whether you are prepared to sacrifice something now in order to save money.

Always keep in mind that saving something from your pay every week and keeping it in a rainy day account is a good habit to get into because it will enable you to pay cash for things which need fixing. It is also a good habit to invest some of your money for the long term such as in mutual funds. This is in addition to your government’s retirement scheme (Kiwisaver in New Zealand).

It is a bad habit to just spend everything in your pay packet every week so that by next week’s pay day you are broke.

www.robertastewart.com

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Note: This article is of the opinion of the writer and may not be applicable to your personal circumstances. I may receive a small commission if you sign up for sharesies.

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7 Things you should never do if in debt

Written by R. A. Stewart

If you have consumer debt of some kind then there is a responsibility and an expectation that you will honour those debts and pay them off in good faith. It is your responsibility to repay whatever you owe and there is an expectation by the lender that he or she will be repaid the amount they lent plus any interest on the loan.

Taking responsibility for your financial affairs and not just burying your head in the sand when problems arise is a part of being a mature adult. Any money you have left over after paying your fixed costs is called discretionary spending money. Your debts are fixed costs which means they must be paid for. You do not have any discretionary spending money if you have consumer debts.

There are things which you must NEVER do when you have debt of any kind. Here is my list of no nos as for debtors.

Subscribe to Satellite TV

This is something which you should never do when you are in debt. The cause of debt is the inability or unwillingness to live within your means and make sacrifices. Sky TV is something which you can do without.

Go on an overseas holiday

How on earth can a debtor go on an overseas holiday when they have debts to pay? A person with a conscience would not be able to relax and enjoy themselves.

Spend money at the bookies

When you are in debt any money in your possession does not belong to you, it belongs to your creditors. You should not be gambling if you are in debt. That is irresponsible. The amount of money is inconsequential, even if it is just $5 on a lottery ticket every week. That is $5 that could be used to pay off your debt.

The lower your debt the less interest you have to pay.

Go out for a meal

This is another big no no for a debtor. Money spent in restaurants is something you do with discretionary spending money and since you are in debt, you do not have any discretionary spending money. If you have a partner who insists on being wined and dined, tell them straight out that you need to pay back your debts before going on nights out. If he or she doesn’t understand that then give him or her their marching orders.

Subscribe to netflix

This is also something you do with your discretionary spending money. Netflix is a drain on your finances and your spare time. You cannot have a debt and Netflix at the same time.

going to the rugby

Buy expensive gifts

It is all very well showering loved ones with expensive gifts for birthdays and Christmas but not Okay if you are in debt. You are the one who is paying for this madness, not your loved ones.

Buying stuff on credit is only delaying the inevitable; the crunch always comes when you have to pay it all back plus interest.

This all boils down to prioritizing your spending. If you are in debt then paying your creditors has to take precedence over everything else; that is after your fixed costs have been taken care of.

Buy a new car

This is one of the worst decisions you can make when in debt because if you are already in debt then you have no more to buy a car therefore, the only way that you can acquire one is to borrow more money and this will keep you in poverty. I suspect that none of my readers will be stupid enough to make this mistake because people who are financially literate read articles which increase their financial education.

About this article: The information in this article is of the opinion of the writer and may not be applicable to your personal circumstances therefore discretion is advised. Feel free to share this article. You may use this article as content for your ebook or blog/site.