While managing your expenses is the best way to avoid debt, it can also be an uphill battle. That's why it's important to have a plan in place. That way, you can avoid accumulating debt by following a few simple rules. Below, you'll find 14 ways to cut down on your expenses, avoid financial pitfalls, and stay out of debt in the process.
1. Make a Budget
Develop a realistic budget and stick to it. Review your budget periodically and revise it when necessary. There are many easy ways to develop a budgeting system such as spreadsheets or online software and apps. These programs will help you determine how much you are spending and saving.
2. Stop purchasing based on impulse
Curb your impulse buying. If you see something that you want to buy, don't buy it right away. Go home and mull it over. If you do this, you probably won't return to the store to make the purchase. Ask yourself if you really need this object and chances are the answer is: you don't.
3. Learn how to manage debt
If you have multiple balances that you need to pay off, you'll need to develop a plan that is effective to manage your debt. Consider attending a personal financial management course to learn how to manage your debt. Approved debtor education courses can teach you how to become and stay financially secure.
Some of the things you might be able to do to get to a point where you can manage your debt include:
4. Limit debt
Limit the amount of debt that you take on. A rule of thumb is monthly payments on your debts (not including your mortgage) should not exceed 20% of your take-home pay.
5. Control monthly expenses at home
Cutting down on monthly expenses can save you a great deal of money. Some bills may seem insignificant by themselves; but when you see the cumulative, the cost can be enormous. Consider cutting back on recurring money drains such as:
Also, take the time to check your credit card and bank accounts to see if you are paying any unexpected recurring bills.
6. Identify ways to cut expenses and save money
Look for ways to cut expenses that are effective and easy to implement. If you typically eat out or order in, consider other cost-effective ways to eat at home. If you don't go to the gym often, maybe it's time to cancel your membership. These simple cutbacks can help you increase your savings.
7. Pay off debts in full
Charge only those items that you can pay off in full when you receive your credit card bill. Don't get into the habit of maxing out your credit cards and just paying the minimum payment. This irresponsible habit means you're continually spending more money than you have and you are collecting significantly more debt due to high credit card interest rates.
8. Keep your mortgage and rental payments reasonable
Don't saddle yourself with huge housing costs. Only take on obligations that you can easily afford now. A general rule of thumb is that rental payments should be either one-fourth or one-third of your monthly income. For example, if an individual makes $3,000 a month, a rent price of $1,000 or less will allow him or her to save comfortably.
9. Develop alternatives to spending money
Make it a hobby to develop alternatives to spending a lot of money. Instead of dining out, go for a walk and have a picnic. Rent books at the library instead of buying them. Try to take advantage of promotions going on in your city. For example, many cities have a day where museums are free or even half off.
10. Invest wisely
Make prudent investments. Avoid investments that promise a high return, like penny stocks, junk bonds, and speculative deals. The reason that those investments offer a high return is that they are extremely risky!
11. Don't cosign or guaranty
Don't cosign or guaranty an obligation for someone else. If that person doesn't pay, you will be responsible for repayment.
12. Obtain adequate home and auto insurance
Be sure that you have adequate insurance on your home, its contents, and your automobiles. An individual can have major bills if they do not have adequate insurance. For example, if you were involved in a major car accident due to fault of your own and do not have adequate insurance, you may be responsible for most of the cost of repairs and damages out of pocket.
13. Obtain adequate health insurance
Be sure that you have adequate health insurance coverage at all times. Health bills can pile up and be in the thousands of dollars. It would be in your best interest to have health insurance to protect yourself from being obligated to pay expensive health bills.
14. Monitor your income and expenses moving forward
Monitoring your income can be very effective in making your budget work. Take a look at your bank statements regularly to identify where you are spending. You can also create a spreadsheet to categorize and track your expenses. This will show you what's really costing you and allow you to start making adjustments to your expenses.
