Experience is a good teacher and I’ve learned a lot in my 60 years of life about managing my money, and most of my lessons were learned through trial and error. You already know that making more and spending less will keep you out of debt, and maybe you have a good grasp on your spending habits, but here are some things you might not have considered (and that I wish I had thought of in my 20s).
- Don’t make assumptions about your job. Many people tend to think that their job will be there as long as they want it, but that is often not the case. You probably won’t see your layoff or firing coming and sudden job loss can put your finances in a tailspin. Make sure you have a savings cushion to cover your expenses during your unemployment.
- Make sure your partner is on the same page. Finances can cause all sort of trouble in a relationship. Sometimes it’s because one of you is a “saver” and the other is a “spender” and sometimes it’s just because you want to spend money on different things. Make an effort to understand each other’s spending habits and to find a middle ground that doesn’t put you into credit card debt.
- Plan for the unexpected. As sure as there are stars in the sky, something is going to break right after you get paid! Whether your car stops running or you need a root canal, life happens, so be sure to prepare for it.
- Don’t buy more than you can afford. A simple concept, but one that we easily justify our way out of. You finally land a job you love and that pays well and you overinflate your lifestyle. You might buy more house or more car than you can comfortably afford. There are plenty of resources (like mint.com) that can help you track expenses. Find one that works for you and make sure that your spending doesn’t exceed your income.
- Don’t take out a consolidation loan. This is a loan to consolidate all your loans/debts into one larger loan. The result is lower monthly payments and maybe lower interest rates on the old debts. The problem is that these usually put you deeper into debt and make it harder to pay it all off. It’s easy to succumb to the idea of “Now I am paying out less per month so I have ‘extra’ money to buy something else” but don’t do it! Try this debt snowball pay-off plan by money guru, Dave Ramsey instead of a consolidation loan.