The world we live in demands much of our financial attention thus its essential to make sure that you carefully manage your finances. But worth noting is that the world is full of complexities whose challenges at times can’t be ignored hence one ends up forcing themselves into debt.
Being fully aware about some of the aspects that make you fall into debt can assist you to avoid any potential mistakes. There are many ways that result you to be in debt and below are some of the eight common reasons we fall into debt:
- Reduced Income whilst having the Same Expenses: One of the simplest and most common causes is a decrease in earnings that do not compliment a decline in expenses. This is caused by a change in job, lifestyle, the economy, or other reasons that cause a financial gap that is often cloed by taking out loans, overspending using credit cards, or overdrawing on your bank account, all of which can accrue debt. If this debt is not paid off habitually, not only does the income-expenditure gap increase, but also the amount of debt used to fill it masses up as well, rapidly resulting to a terrible financial situation.
- Poor Money Management or Budgeting: Poorly managing your money in any way can lead to debt. Poor spending or budgeting of your monthly purchases, can easily make you lose track of your finances thus you find yourself spending more money than you can afford, or charging too many purchases to a credit card when they should rather be paid for in cash. The ideal way to put together a money management plan is to note your monthly income and expenses, making sure that the two always balance out. This can assist to keep away from many of the above-mentioned issues.
- Getting a Divorce: The process of going through a divorce is so challenging, but changing to a new financial situation where your spouse’s income is no longer a factor can be so challenging too. Shared assets generally need to be divided in the event of a divorce, and this will no doubt considerably modify your financial standing. Moreover, the divorce process can be costly, especially where legal fees come into play. Emotions also run high during and following a divorce, which can lead to reckless spending and ‘binge buying’ – a slippery slope that can easily lead to falling into debt.
- Gambling Debt: Debatably one of the easiest and most straightforward ways to lose large amounts of money at a tremendously fast rate is to gamble it away. While gambling is a highly popular form of entertainment, most people are under the false impression that it can also be a profitable one. While this can be true for the very lucky (or very skilled), the vast majority of gamblers find themselves losing money very quickly. The addictive nature of gambling also means that it is easy to get sucked in, losing your money faster than you can keep track of it and falling deeply into debt before you even know it. The National Responsible Gambling Program offers support and guidance to individuals suffering with this issue.
- Medical Expenses: At times losing money and getting into debt is a matter of irregular circumstances, and an unexpected illness or accident can fall squarely into this category. Even with many forms of medical insurance, the costs of medical treatment can be very high, especially if money is already tight and this kind of expenditure was not remotely planned for. The emotional aspect of needing to care for such a person can also take a toll, leading to bad financial decisions regarding treatment as well as in other areas of life – all of which can lead to debt.
- Lack of any Form of Savings: The idea of saving for the future is often overlooked in favour of spending immediately thus remaining with no money to use in the near future. Many people are of the idea that as long as they have a reliable income and are spending within their means, there is no vast need to save. Nevertheless, as mentioned above, many unforeseen events or circumstances in life can rapidly result to this financial certainty being undermined. Illness, retrenchment, economic failure, or any number of other reasons can easily result to loss of income or the need for unexpected spending. Without a savings cushion to fall back on, the only recourse for people in this situation is to take measures (such as a loan) that result in debt.
- Lack of Financial Education: It is a regrettable fact of our education system that, while many schools are very good at teaching the curriculum, they surprisingly do less to groom students for life in the real world. Parents also expect schools to do the same, thus a gap in learning results from this. Often included in this gap are the knowledge and tools needed for effective financial management in adulthood. Many people enter the world of finances without much knowledge on how to responsibly manage money, and such people are particularly prone to making poor decisions and falling into debt as a result.
- Retrenchment, Unemployment or Retirement: Unemployment can be either planned or unexpected. In either case, the change in financial situation entail urgent adjustment in spending habits in order to ensure that these are sustainable. Many people who find themselves newly unemployed have some difficulty making this adjustment, and may make poor financial decisions that cause them to fall into debt accidentally. Regrettably, as many such people will tell you, losing or quitting a job is generally far easier than finding a new one! Also please remember to claim from the Unemployment Insurance Fund, it’s amazing how far a UIF payment can go to helping with expenses.