Be smart about staying out of debt

This was originally published on Monday, March 28 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Financial trouble can happen to the best of us. Small mistakes or an emergency can cause our finances to get out of control. Once you pull yourself out of trouble the important thing is to remember how difficult it was to get out of it. Mistakes happen but if you don’t learn from them you’ll find yourself back in that same situation.

Understand what started your troubles: Did you lose a job? Was it due to unforeseen circumstances? Or maybe it was a combination of several catalysts. Whatever the cause, be aware and stay clear from making the same mistakes again. Go back and think what could have reduced the impact? A larger emergency fund? Better budgeting? Or possibly understanding how credit works?

Budget: If you’ve been reading my past articles, you’ll realize I’m a believer in a budget. Think of a budget as the blueprint to your financial health. You build your wealth and security based on these blueprints. Be aware of what comes into the household and where it goes. The goal is to have a little left over every month and put a little away in savings. Prioritize your spending with your necessities first and then work your way through your bills saving the “luxury” items for last. These are the items that bring you joy such as the movies or dining out.

Tailor your lifestyle to your budget: In other words, live within your means. Don’t try to keep up with the neighbors or friends. Be creative and find ways to stay comfortable. If your income is reduced your spending should be too.

Charge no more than what you can pay: Bad credit habits are one of the major reasons people find themselves in financial trouble. If you do not have the money in your pocket or in your bank account, don’t use your credit card. There are some circumstances where you may need it to purchase a vacation or large item. In that case, before you purchase, reevaluate your budget. How will you pay off the balance and how long will it take? What are you willing to sacrifice to pay it off?

Spending is emotional: Whether it’s to ease the troubles of a long, hard day at the bar with friends or purchasing a video console for the perfect birthday gift, our money is usually connected to our emotions. Find out what triggers you to spend impulsively and find a way to stay away from it or ways to cope with the emotion.

Expect the unexpected: Create an emergency fund. Everyone has an optimal amount they want to set aside. The bigger the emergency fund, the better you’re prepared. This fund should be able to cover car repairs, busted pipes, or even the loss of a job for a few months. Whatever your amount is, the important thing is to start.

Get money smart: You don’t have to hire a financial counselor or pay for a lesson. There are many free resources online, in the library or from nonprofit organizations that you can turn to. If you become familiar with money, you will not be intimidated by it.

Enjoy your financial freedom. You worked hard to get out of your financial troubles. Enjoy your new-found freedom. With good planning, you can realize your dreams.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

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