To avoid bankruptcy, you need to cultivate healthy budgeting habits. The last thing you should do is to compare yourself with the “Joneses” or try to keep up with them. Below are some habits you can adapt to help you live within your means and avoid bankruptcy.
1. Live on Less Than You Make
The surest way to keep off debts is to live within your means. Be content with the life you have as you seek for ways to expand your means. You don’t have to drive a car you cannot afford or take a mortgage you have no ability to repay. As you budget, make sure every item on the list is necessary, and you can afford it. Do not let others’ opinion of your clothes, car, house, etc., influence you to get into debt just to prove them wrong.
2. Surround Yourself with Like-Minded People
If you want to know who you are, check out the people you often hang out with. The financial habits of your five closest friends will have an impact on you. If they have reckless spending habits, that will rub off on you too. Surround yourself with people who inspire and motivate you to achieve your financial goals. These should be people who live within their means; who encourage you to do so as well. If, however, your closest friends keep pressurizing you to buy stuff you cannot afford, let them go and seek new friends who, like you, seek a debt-free life.
3. Align Your Budget with Your Life Goals
Tightly align your budget with your key financial goals. Do not be tempted to overspend just because you have a good income. This can quickly get you into serious debt trouble. You could be making a six-figure income and still have to file for bankruptcy due to bad spending habits.
4. Avoid Impulse Purchases
To live a debt-free life, you need to avoid buying on impulse. If something is not budgeted for, don’t buy it; even if you think you can afford it. Stick to your budget and be choosy where to buy your stuff. If you are planning to eat out, chose your diner carefully. Don’t spend your hard-earned money aimlessly. Be strategic, thoughtful, and only shop where you will get more bang for your buck.
5. Be Patient and Self-Controlled
A debt-free life is one of patience, self-control and frugality. To live this kind of life, you have to be willing to defer instant gratification for lifelong financial security. For instance, if you need a laptop or tablet, or even an iPhone, start saving now and build up reserves so you can buy it cash instead of taking a loan. You don’t have to get a loan so you can buy the latest iPhone or computer. Always save to buy instead of borrowing to buy. The simple rule you should stick to is this: if I cannot afford it, I don’t buy it.
6. Have a Watertight Budget
The choices you make today will get you huge benefits years down the road. You are the decisions you make and the actions you take on a daily basis. Living from paycheck to paycheck without a solid budget will soon get you into debt territory at retirement. Be uncompromising with your budget. Your life depends on it.
7. Stay Liquid
You never know when an emergency will strike. Having access to cash when you need it helps you avoid the temptation to borrow. Your budget should have provision for an emergency cash fund you can fall back on in case you find yourself out of a job.
Debt can be debilitating. Trying to maintain a lifestyle you cannot afford can quickly get you into debt trouble. At its extreme, debt can wreck marriages, drain you emotionally, and cause stress-related illnesses.