Most of us love splurging, it’s a human activity that a very few can resist. Whether you’ve money in hand, you love to shop, eat out, enjoy sipping your favorite coffee at Starbucks with friends, and so on. As you go out and see around you wonderful goodies, clothing shops, restaurants, your purse start tingling to be used. Some of you love to buy branded clothes whereas some of you love to eat costly chocolates. You don’t even know where your money is going. When you don’t have cash, you start using credit cards to get the things. And thus, the problems start. Am I right? I know you’ll say, these are your innate desire that forces you to splurge. But, did you ever think that rampant, using credit cards, spending more than your income, not following a budget, not saving a certain amount of money are not just some simple mistakes, you’re actually heading towards debt.
Pitfalls of using too many credit cards
Nowadays, having more than one credit cards becomes a trend. It’s almost difficult to find a wallet with one credit card. As per the Federal Reserve and other government statistics, the average Americans household owes $7,281 in credit card debt. This is not the end, besides adults, college fellows also become slaves of plastics. They are in a credit card debt trap from their college days. According to the survey conducted by Sallie Mae, in 2013, the average balance among college students is $499.
A survey conducted by the Georgetown University reveals, that most of the college students have 2-3 credit cards in their wallet. It’s very difficult to say whether they make their own payments or not. In many cases, credit cards are provided by their parents.
The changes in the student debt scenario
As per the Credit cards Accountability, Responsibility and Disclosure (CARD) Act 2009, it becomes difficult to get approved for credit cards who are under 21 years old. The people aged under 21 years old have to find out a co-signer or prove a reliable source of income for making the payments.
However, the Sallie Mae reports reveal, still students owe a mountain of credit card debts. This is why financial literacy is important. And the lesson should start from the home where parents should be the teacher.
How can you achieve financial freedom?
Credit cards allow you to buy items on credit, even if you don’t have the cash available at that moment with you. However, all credit cards have a time period, usually one month, by which you’re expected to pay back the bills. If you fail to do this, then the credit card company starts charging interest on the amount of debt you have. Usually, such interest rates are quite high. Thus, it becomes more difficult for getting out of debt.
However, taking control of spending is hard, but not impossible. If you start managing your money from your initial days of your earning, then it will be easier for you to manage your hard earned money. Follow the below tips:
- Planning is the key
To save at least 10% of what you earn, you should start with some well-crafted plans. What are they? The first and foremost thing is to set up a budget. Then, you should learn how to cut down unnecessary expenses. Thus, you’ll be able to save automatically. Try to not splurge anymore.
- Follow a monthly budget
Reducing monthly expenses is hard. It’s difficult to cut off restaurants, visits and much more. But, you have to reduce extra expenses to avoid exceeding your budget every month. If you successfully follow your budget, then you can put a certain amount of money in your emergency fund, or savings account. If you have any money left after saving, then you can buy some items of luxury as per your choice.
Creating a budget is easy. You just need to make a list of things that you require every month. Now calculate what you earn each month and subtract the amount that you need to buy. The figure you get should be positive. Otherwise, you have to reduce your expenses or search additional sources of income.
- Maintain a savings account
It is very important that you have a savings account. It helps you to accumulate money and make payments toward your financial obligation. If you had a savings account in the first place, then you wouldn’t have had to borrow money and fall in the debt trap.
- Use cash as much cash as possible
When you’re going out for shopping carry a list with you writing down the things that you need to buy. Make sure you carry enough cash needed to buy these things, but not more. In this way, even if you feel like buying anything more, you won’t be able to and thus, reduce your expenditure. You’ll know where your money is going.
- Parents, giving credit cards is not the end of responsibility
Most of the parents think that giving credit cards complete their responsibility towards their children. This is a wrong concept that destroys most of the teen’s financial future. As a parent, it’s your responsibility to make your child aware of the pros and cons of using credit cards. Teach your kid the proper ways of dealing with plastics. Otherwise, it can create financial havoc.
Due to the lifestyle inflation, you have many options for spending money. But, you shouldn’t forget that after retirement, you should have enough money in your account to maintain the same lifestyle. Thus, you have to be calculative now to secure your financial future. For instance,
# You should be careful before giving credit cards to your kids,
# You need to open college savings account 525 to avoid your child’s student loan debt,
# You should have enough savings to medical emergencies,
# You must be extra watchful before planning a lavish vacation each year, or
# You need to adopt a frugal lifestyle to save more and so on.
I swear, in your retirement days, you’ll feel the luckiest person sipping a hot cup of blissful coffee sitting on your couch enjoying all the lazy days.