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Today’s post is a guest post from Amy Nickson. She works as a financial writer and shares her expertise on money management, saving ideas, debt, and more. You can read more of her writing at Oak View Law Group and follow her on Twitter.
Being in debt is a burden that can make your life stressful. If you don’t try to ease the debt problem, your financial life will be under much more pressure. While no one wants to go through the cycle of having debt, the process of paying it off is a liberating experience that can bring lifelong lessons.
Many of these financial lessons can help people remain debt free forever, if they’re applied properly.
Here are some effective financial lessons your debt can teach you:
Lesson #1 – Budgeting is key
Did you know how to plan a budget before falling into debt?
Most people who end up falling into consumer debt don’t have a strong handle on their monthly budget. They often spend more than they’re bringing in each month, leading to credit card debt. They fell into the habit of swiping their card without being mindful about whether they’d be able to pay the bill at the end of the month.
That’s why a budget is important, it helps you understand where your money is going. When you’re more aware of your spending, you’re less likely to overspend and are more able to build savings for your financial future.
Allocate money towards both fixed expenses and variable expenses (only necessary items), giving each dollar of your income a specific purchase. After doing so, if you find you’re unable to cover your expenses, you need to eliminate certain areas of your spending. If you stick to your budget, you’ll avoid accumulating debt.
Over time you’ll get to the point where you’ll no longer need to track every penny, and your budget can be on auto-pilot. Just be sure to look it over ever now and then to revise as needed.
Lesson #2 – Living within your means is not living miserly
Making purchases beyond what you can afford is what leads to falling back into debt. People who took on the challenge of paying off their debt successfully learn how important it is to live within their means.
Living within your means is not living miserly, it’s what helps lead to succeeding with your finances. You just need to focus on value-based spending. Knowing your priorities, lowering your financial obligations, and spending your hard-earned money in a meaningful way are important ways to remain debt-free.
Lesson #3 – Making payments on time is vital
Being late and missing payments are prime ways to incur more debt. To get your debt paid off you need to be financially disciplined.
The easiest way to make sure all your bills get paid on time are to set them all to autopay. Your bills get paid and you have less to remember each month.
Lesson #4 – Saving for the future is essential
Many people agree that the debt payoff challenge has taught them to save money regularly. How? Once they took on the challenge of paying off their debt, they became accustomed to setting aside money regularly. It started as extra payments toward the debt, and then once they became debt free, those same payments were able to be put towards saving and investing.
Setting aside money doesn’t have to be difficult. Allocate a certain amount for saving just like you do with other expenses when formulating your monthly budget. Additionally, by automating your savings you’ll avoid the temptation to spend it. This keeps a portion of your disposable income out of sight so that you don’t miss it.
Once you build up your savings, you’ll feel a greater sense of financial security. After getting out of debt, try to build up a larger emergency fund and retirement fund using the same process.
Being in debt can feel like a big weight on your shoulders. However, with the proper actions, you can defeat the debt demon. Following the financial lessons that you learned from your past debt helps set up a brighter future.
Related Reading: 5 Reasons Why I’m Thankful for My Student Loans
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