Most of us want to live the American Dream; we want to be able to buy whatever we want whenever we want it, go where we want when we want, and do what we want when we want to do it. The American Dream can turn into a nightmare, however, if we’re not careful. Debt can creep up on you and take you down when you least expect it and when you’re most vulnerable. Debt is a dream stealer!
It is not necessary to go into debt in order to be able to have the things you need and want. However, it’s easy to get caught up in the trap of thinking you have to have it now, and oftentimes that means putting it on a credit card or taking out a loan.
Aside from an “I want it and I want it now” mentality, here are some other warning signs that you might be in danger of a lifetime of slavery to indebtedness:
Warning Sign: You Don’t Have a Budget
When you don’t have control of your money and finances, you are at risk of going into debt. Having a budget allows you to the freedom to decide where your money is going and it opens the door to savings. The key to staying out of debt, but still having the freedom to purchase the things you want and need, is being able to save up for them and pay cash.
Warning Sign: You’re Living Beyond Your Means
When you find yourself struggling to make ends meet every month, you’re living outside your means. When you have more going out than coming in, you are more likely to be tempted to go into debt in order to get the things you need or want. So, if you find yourself with “too much month at the end of the money,” take heed!
Warning Sign: You Don’t Have an Emergency Fund
As its name implies, an emergency fund is money that you have set aside for emergencies. You should have at the very minimum $1000 set aside for emergencies. Make that your first goal. Then work toward having at least one month’s income set aside in your emergency fund. Money for food, weekends away, and routine car maintenance are not emergencies. You should have money budgeted for these things. A true emergency would be an unexpected hospitalization, a death in the family, or a car accident. If a true emergency arises and you don’t have an emergency fund, you may be forced to go into debt in order to pay hospital bills or other expenses.
Warning Sign: You Believe You Must Incur Debt in Order to “Build Your Credit”
This is a “myth” and is one of the biggest pitfalls of all where debt is concerned. Your parents and grandparents have probably taught you that you must build credit so you can have the things you want in the world. However, the truth is, you can have nice things without going into debt, including nice homes and cars. The “trick” is budgeting, saving and planning so that you can pay cash. You don’t have to take out a loan or use a credit card, even to buy the larger items.
By knowing and paying attention to these warning signs, you can avoid the pitfalls of debt and enjoy living a debt-free life.