It’s easy for many people to get trapped in a cycle of debt because they don’t live within their means. This is the truth that scares most people. Finance management is one of the most important skills that you are going to need in your adulthood and is also one of the things that no one teaches us. We learn through trials and errors.
The debt issue though – it keeps on happening because something isn’t being done. I won’t pretend to know the reason why some resort to borrowing money because everyone’s situation is different and everyone has grown up in different conditions. This is also not to judge anyone honestly. I am here figuring, out stuff as I go, myself.
However, let me tell you somethings to help you break out of it if I can. One of the things that have helped me manage my finances is a simple equation.
Income = Expenses (Recurring and Immediate) + Investment + Savings.
The math here is simple. If you spend more than you earn, you’ll end up borrowing money to fund those excessive purchases. Living well within our means is a lesson that most of us were given at one point or another. We just need to learn to channel it better.
Now, the equation may appear lopsided in your case, which is why you have to evaluate your financial status right away.
Track your debt – How much money do you owe banks and lenders, other people, and other credit sources? List all of them in a spreadsheet or a text editor. You can also use a money journal or notebook. It doesn’t have to be expensive, let’s begin with that. Just find a notebook you can turn into a financial diary of sorts and is easy to carry.
Monitor your expenses – Google Sheets or Excel should do the job for you. Whenever you spend cash or credit on an item, service, utility, or the like, make an entry in your document. Divide the entries into needs and wants or non-negotiables and negotiables. You can also download budget tracker apps to be more organized. I like the old paper and pen way more, so I do it the old fashioned way.
Create/revise a budget – Now that you have a proper breakdown of your expenses, you can use the debt and expense data to revise your budget. If you don’t have a budget, create one now – it’s not too late to start this habit. Every month, review your financial documents and assess your progress so that you will know what areas you need to work on.
Some skills, even though never taught to us, are extremely important. Knowing how to handle your finances and make smart decisions with your money is one of them. You might not know how to make your money work for you, but you first need to start from learning the small step of actually saving money. After that, you can focus on learning about investments and passive incomes.