If you have large debts with various credit providers saving is not a good option. You will most likely be paying high interest rates on each of your debts. It makes financial sense to consolidate your debts as paying them off quicker provides a better return. Saving could provide a more positive feeling than the […]
5 May 2015
With the rising cost of living, never-ending changes in fuel prices and the ever-increasing cost of food, our finances are constantly demanding our attention. It is vital that we make sure we carefully manage our money. As life throws us financial curve balls, it can be quite difficult to keep on top of everything and often we are forced into a tough financial spot, leaving us to accrue debt.
Making yourself fully aware of some of the reasons which may get you into debt, can assist you with avoiding potential financial mistakes.
1. Lack of financial education
It is a regrettable fact of our education system that, while some government schools are good at teaching the set out curriculum, others fail to meet the basic standards required to fully equip students for the real world. A gap in knowledge and a lack of tools needed to educate students, leave many young adults without the ability to manage their money responsibly and lead them down the wrong path financially.
2. Poor Money Management
Managing your money poorly can lead you into debt very quickly. Budgeting and saving are two common money management aspects which consumers fail to do.
Budgeting: A budget is a breakdown of your income and expenses. It helps you to plan for the month ahead and by sticking to it, it helps prevent you from spending more than you earn each month.
Saving: It is vital that you allocate an amount of money towards an emergency savings account on a monthly basis so that you are not caught by surprise and have to borrow money or short pay on accounts to cover emergencies. Without a savings cushion to fall back on, the only recourse for people in this situation is to take financial measures which result in debt.
3. Non-essential spending/Conspicuous Consumption
Many consumers purchase non-essential items known as luxury goods, either for personal pleasure or as a means to display economic power and gain social status. Sadly, consumers use credit for these purchases as they do not have the funds to pay in cash.
4. Lack of planning for unexpected or expected Illness
Unexpected circumstances, such as illness, is often a reason why people get into debt. Medical insurance or aid is something consumers are reluctant to take out as it can be extremely costly. However, medical treatment is costly too. If money is tight, medical treatment is likely to be unplanned for. Unfortunately, when pushed into a tight spot and you have no option other than to pay for medical treatment, people use their credit cards to cover the costs.
5.Retrenchment/Unemployment/Reduced Working Hours
Unemployment can be something which is planned, however when unexpected, it can be a huge financial burden. The change in financial situation will require urgent changes in spending habits to ensure that you keep within your budget. Regrettably, losing your job is far easier than finding a new one. Consumers struggling to find a new means of acquiring income may have to resort to their last option, credit, to get by.
Please note: Most consumers will have the option of claiming from the Unemployment Insurance Fund (UIF) to cover monthly expenses.
6. Splurging on funerals, weddings and other life events
Traditionally in South Africa, funerals and weddings are big life events which consumers splurge on. Unfortunately, consumers who fail to save for these events use credit to cover the costs. Before they know it, they have a lump sum of debt and the monthly debt repayments impact their monthly budget.
Identifying these common financial can ensure that you do your very best to avoid making the same financial mistakes, which leave you in debt. However, debt happens. It can’t always be avoided. If you find yourself under financial pressure, seek help and act on it before there is no way out. DebtBusters, South Africa’s BEST debt counselling company can provide you with expert advice and a means for financial freedom. Make that call today. DebtBusters – 086 999 06 06.