The Capital
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The Capital

How Most People Get Into Big Financial Difficulty And How To Avoid It

There is no doubt that we live in a world where money can be cheap. Many thanks to the low interest rate monetary policies of apex banks around the world. This is a big incentive that can fuel reckless borrowing by individuals because it makes for less cost of borrowing. The other side of the coin however, means that cheap cost of borrowing can lead to acquisition of high debt that spins out of control.

Debt so high that it spins out of control can be injurious to your wellbeing. It can keep you awake at night and make financial freedom a far-fetched reality.

You’re wondering how it can happen to you? Yes, it can happen to you in the course of many financial decisions you will make as you move from one stage of your life to another.

Let’s say you’re currently a college or university student. Unless you have already won a lottery or got some fat monetary inheritance, chances are high that you owe some student loan debt right now, which can increase before you graduate.

Congratulations on your graduation! You are now decorated with a degree, which sets you up to go for your dream job. You land your dream job, the pay is right, just what you expected, and life is good! Now you want to own a good car that befits your status as an educated young individual who is doing well in life. You go out and buy that car, why not? But now, portions of your after-tax salary minus other compulsory deductions, will start to service your student loan and car loan debt, in addition to other living expenses you compulsorily incur, including rent.

You have feelings. That’s normal. You long to love someone and long to have that person love you back. So one day you meet that someone, sparks fly, you both fall in love and have no iota of doubt that the next sensible step to take is to take your cherished love tango to the next level. Wedding bells have to toll. That day is supposed to be your happiest day, and you have no problem with the idea of making a splash that will make your wedding the talk of the town. Money is handy, and with credit cards ever at your service, you go ahead and reward yourself. You deserve it, but you have thrown some credit card debt into the mix. Now you are on board for a long journey of making at least minimum payments on your wedding credit card expenses. This can take years to pay off, including the principal sum that remains the same if you are making only the minimum payment.

You and your spouse start to nurse ambitions of owning your own home. Renting doesn’t cut it any longer. That means you have to get a mortgage loan. You go for it! And your regular mortgage payments, property taxes, insurance and other expenses associated with owning your own home will start to further erode earnings that come from your job.

At this stage, your expenses are already way too high due to lots of debt hanging on your shoulders. You have only done a good job of acquiring liabilities that make you save very little, if at all.

The good news is that you can keep debt as low as possible in your life. The following information can be of help.

Live within your means so you can keep your expenses under control.

If you take on personally debt, make sure it is small.

If you take on a large debt, make sure it is debt that generates cash flow or passive income for you. An example would be mortgage loan on rented real estate.



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