When we are born, we have no debt. We don’t owe anyone anything. Yet the average person has thousands of pounds in credit card debt. The purpose of this blog post is to flesh out the reasons for the change. Do people get debt because they can’t help but get debt? Or have they made poor choices? We’re about to find out.
You owe £500 for a car repair. You forgot that a car could break down. You don’t have that amount of money lying around. Your only option is to owe for it. It’s emergencies like these that get many people into debt. A lot of times, we choose not to peer into the future. So to stay out of emergency situations like this, we need to learn how to read into the future.
Predicting the future isn’t as hard as you might think. You simply see what can go wrong and save as though it will. It’s like Murphy’s Law. Anything that can happen, will happen.
Something really cool can happen when you plan ahead. It’s almost as if you have the ability to predict the future. Some call this the Law of Attraction. This law basically states that if you focus on something, you will attract it. If you focus on money, you will get rich. If you focus on having a beautiful girlfriend, you will get one. The power of the mind is indeed amazing. Many people don’t fully believe in the Law of Attraction. But you have to admit. What you think about most often is usually what you get. Be aware of your situation. Predict the future.
Another popular way to get into debt is by living beyond your means. You’re doing this for a variety of reasons. Perhaps you never took the time to learn about personal finance. That’s forgivable. Our schools do not do a great job of teaching it. Or perhaps you’re doing it to impress others. This is known as ‘Keeping up with the Joneses.’ You buy things to impress people you probably don’t even like. This is a crummy way to go through life. Although I know it is tempting. Your neighbor gets a brand new luxury SUV. He talks to your spouse about how great and luxurious it is. Your spouse loves it. You want to overextend yourself to make your life better. However, this is rarely the outcome. If you can’t afford something, you shouldn’t be buying it – end of story. But thanks to lines of credit, that doesn’t matter. Creditors are more than happy to get you into a new car. After all, they get to collect lots and lots of interest from you. What happens is you begin loathing that new Land Rover Sport. Don’t loathe your Land Rover. Wait until you can actually afford one. Or decide to never buy one. There are much cheaper cars that can provide a similar ownership experience.
I knew someone once who got into debt because they thought it was the acceptable thing to do. That actually makes sense. Their friends are in debt. The people with suits at the bank encouraged her to get debt. Her parents have debt. In fact, nearly everyone she knows has debt. She never learned anything otherwise in school. Furthermore, she had never exposed herself to the frugal lifestyle.
Yes, another reason people get into debt is they feel it’s a good place to be. They feel included. It’s this kind of ignorance that gets people in trouble. The famous investor, Charlie Munger, says you should not argue a point unless you can argue the other point as well. This is true about anything in life. If you think getting debt is a good thing, consider the path of no debt. What might that look like? You may find that to be even better.
I like to employ this strategy all the time. Sure, living in a certain neighborhood would be great but what about living in another. Might it have its perks? Might it be wise to check those out? Yes.
Another reason people get into debt is a sad one. It’s because of debt other people should owe. Perhaps you took out debt to help someone else. Or maybe someone stole your credit card and racked up bills. When it comes to personal finance, you’ve got to put your own oxygen mask on first. That means you must make sure your financial situation is secure before helping others. If you don’t, you will both pass out and die. I know it sounds like you’re being selfish but you’re really being wise. Once you have your situation figured out, then, by all means, help others. That’s half the fun of being money wise – so you can help others!
The final reason people get into debt is because of a lack of insurance. You must make sure you’re covered when tragedy befalls you. It’s important to get the right types of insurance with the right types of coverage. Having insurance provides many benefits:
- Being covered helps you sleep at night
- Being covered means you won’t need as long of an emergency fund – leaving more money to invest
- Being covered allows you to focus on yourself, rather than money
What’s your debt situation like? How can you stop it? Focus on getting out of debt and that’s exactly what will happen – with a bit of willpower as well, of course!
Will Lipovsky is a personal finance freelance writer and internet marketer. His most embarrassing moment has been saying to a Microsoft executive, “I’ll just Google it.” You can get in touch with Will at FirstQuarterFinance.com.