It’s no secret that Americans seem to have a love affair with debt. At the time this is being written, the personal debt of U.S. citizens is an average of $64,145 per person.
Secured debt like auto loans, mortgages, and rental properties can be burdensome if the consumer is overreaching. Unsecured loans like credit cards, student loans, and personal loans can be downright oppressive, putting many in a position where they will not be able to get out of debt without some serious help.
This raises the question of what causes debt in the first place, and how can average people prepare and plan to try and avoid debt?
This may seem simplistic, but a very common cause of debt is people living outside of their means. Just spending $20 more per month than you earn might cause you to have to swipe the credit card to make ends meet. Continue that trend for 6 months and you have fallen into a debt pitfall that might have easily been avoided.
One easy cure that might help you circumvent this trap is to develop a budget. By determining your monthly needs on paper, you can see how much you have left for discretionary spending. Make a plan to not spend more than what you make. By putting up healthy boundaries in advance, you can keep your money from going in all directions and leaving you in a crisis at the end of the month.
Putting on paper exactly what you spent last month for different types of activities might also reveal areas where you need to reel back spending. Many people who don’t budget well are amazed to find out just how much money they have spent on items that didn’t feel expensive at the time. Dining out, coffees, and snacks on the go might be taking hundreds more than you think out of your account every month.
Reign in those line items a bit, and you will find it much easier to avoid swiping the credit card.
Few things can get someone signing up for debt like an unforeseen expense. It could be a car transmission, an air conditioner unit for your house, or an unexpected trip to the emergency room. Suddenly you need a pile of cash, and if you don’t have one, you will be borrowing money to cover the sudden expense.
Having robust savings accounts for the odd rainy day is an incredible and powerful barrier to undesirable debt. By setting aside some money every month for emergencies before they happen, you will be ready when they do happen.
In the same way, you can safely predict that at some point you will need to replace your car, your furnace, and your couch. By planning ahead with a savings strategy to replace these items as needed, you can avoid debt and save thousands of dollars in interest.
A healthy savings account is an effective shield against unwanted debt.
Sometimes life just deals out a bad hand. We make plans, and sometimes they don’t turn out the way we expected. Loss of a job, loss of a loved one, or unforeseen health complications can all lead to terrible financial situations and possibly large amounts of debt.
We might not be able to dodge all the hazards of life, but we can try to be as prepared as possible for them. For example, nothing can take away the pain of losing a loved one in your family, but having proper life insurance coverage might prevent a financial crisis that leads to debt. Or, knowing now that long-term healthcare is incredibly expensive, having a plan to pay for that care will allow you to focus on the people you care about, not on the price tag of their care.
For most unanticipated emergencies, there is insurance available to protect you financially. Insurance won’t prevent difficulties, but it might prevent debt when difficulties come around.
Get In Control
Most of the preventatives of debt revolve around proper preparation. By planning ahead, you no longer need to exercise the debt options that are available because you have the cash you need when you want it.
If you need to make a comprehensive financial plan for your future, we at the Center for Wealth Management are here to help. Get control of your resources today by calling (248) 220-4321, or email firstname.lastname@example.org.
Justin Williamson is a Senior Partner and Co-Owner of the Center for Wealth Management, an independent, fee-based wealth management company in Troy, MI. Justin has been serving clients in the financial services industry since 2001. He spends his days helping his clients achieve their financial goals and make the best decisions for their families so they can spend time on what they love and experience financial peace of mind. Justin is known for his dedication, integrity, personal touch, and ability to simplify complex issues. Justin specializes in serving engineers and other professionals who are close to retirement or recently retired, helping them maximize their benefits and create a retirement plan they can rely on. He is a seasoned public speaker, presenting at numerous corporate events each year on retirement planning, Medicare, Social Security, and other financial topics. Justin has a bachelor’s degree in Business Administration majoring in Personal Financial Planning from Central Michigan University and is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional.
Outside of work, Justin enjoys spending time with his family. He lost his wife of eighteen years, Heather, to brain cancer in 2020. He and his son, Carter, and twin daughters, Jaden and Kelsey work to honor her and make her proud each day. You can often find him coaching baseball, softball, and basketball, and spending time with his family at their cabin at Higgins Lake. Learn more about Justin by connecting with him on LinkedIn.