Making smart choices when paying for life’s expenses


How you pay for all the expenses during your lifetime can have a significant impact on your financial situation. Making the wrong choice in funding your spending often leads to money problems.
What are ways that people can get in trouble when paying for life’s expenses?
One of the biggest is not thinking about the long term consequences of using credit for all other their purchases. Almost everyone has to borrow but using it wisely and not overloading your monthly budget with debt payments is extremely important in avoiding money issues.
What types of expenses cause the most financial problems?
First would be discretionary spending like luxury or major entertainment expenses. The second is expenses that are emergency in nature such as car repairs or medical expenses. Financing this spending can quickly lead to very tight monthly budgets.
How should people pay for their discretionary spending?
For most people, they should save before spending money on a big screen TV or taking a vacation. This type of spending is already expensive and adding the cost of interest only increases these expenses. It really isn’t smart to pay for a vacation for the next 4 years. If you can’t save for it, you are very likely not really going to be able to make the debt payment either.
What about car repairs or minor medical bills?
This is where building an emergency fund is important. Even if you don’t have all the money, having some will help keep the monthly payment amount lower. This ensures that your monthly budget doesn’t suffer a huge increase in expenses. A good savings option for medical expenses is a health savings account because of the tax savings these types of accounts offer.
What is the biggest spending mistake that one can make?
Funding everyday living expenses with credit card debt. Anyone who is overextended with their monthly expenses may feel that they can use credit until their situation improves. This almost always leads to increased pressure on the monthly budget that isn’t sustainable.
How can a person best decide how much debt to accumulate?
The very best tool to use is a budget. If you monitor your monthly cash flow, one can determine very quickly if they can afford additional debt or not. If you have excess funds each month, then you know how much additional debt you can incur and if you don’t have excess funds, you shouldn’t add additional debt.

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