Many people still get into debt well knowing the consequences they could end up with. Since we get into debt at some point of our lives, it is important to identify what are the possible pitfalls that can spin those debts out of control.
Family communication about money can be very limited especially if it is a grim issue to begin with. Kids growing up in a family that don’t preach money management and no not invest their money would probably not have good money sense. Couples who do not openly talk about their financial issues may rack up their credit card debts and try to conceal the fact from their spouse.
Having to adjust your lifestyle due to reduced income is difficult, if not embarrassing. Whether it is a layoff, mid life crisis or a lousy retirement plan that result in reduced income, you may secretly hope that is only temporary and isn’t really happening to you. Not accepting reality will only let debt fuel your unbalanced spending, even if your earning ability do improve after that.
Having savings that can cover a few months worth of living expenses can help you face life’s many unforeseen consequences. However, in our ‘instant gratification’ society, people are increasingly spending the money haven’t got rather than saving for future emergencies.
An impending windfall will throw some people out of track, as they believe that the money is theirs for the taking when the time comes. Some people stop working because they believe they will have a windfall soon, others leisurely spend now and cover later. Sadly though, that is often not the case. Inheritance are more likely than bonuses but could take a long time to materialize if it does materialize at all.
Earning a decent pay with high disposable income but never knew where all your money go? Or just can’t get enough of shopping and staying on top of the fashion cult even though it means getting yourself in debt? All this have to do with lack of money management and no clear financial goal.
We are living in a world where you are judged based on the car you are driving, your job designation and which brand you carry on you. People in the mid level management are especially vulnerable to get into debt to ‘show’ that they have ‘arrived’. They may or may not be high maintenance but they definitely cannot afford to be caught dead being frugal. These are highly educated, younger people who think they should be driving a certain car and living in a certain neighborhood even though they may not yet be able to afford it.
The gambling industry is not recession-proof for not reason. People gamble when they have the money, when they need money and they gamble even more when they don’t have the money. The easiest and most convenient source of capital? Credit card cash advance, of course and when this amount cannot be repaid, debt pile up rapidly.
Some people get into debt following a divorce. You use to be able to afford a big house and fancy cars with your joint income but not anymore. Now that a divorce is impending, you are forced to sell your house as soon as you can so you don’t have to continue paying the bank. Unfortunately this also mean that you sell at a lower price but you still have to fork out legal and other related fees. Want to keep your children after divorce? Custody battle can be a long and process and can cost you a fortune.
A hospital is primarily a business and secondarily a health aid establishment. Do not even dream of getting treatment when you cannot cough up the required upfront payment. For safety that they are guaranteed to be paid, you need to pay before any treatment can commence either by producing medical coverage card, cash or by credit card. Not everyone has adequate insurance coverage or the cash but they sure do own credit cards. Medical expenses are often not cheap and always an unexpected and unavailable money to begin with – which is why they usually ended up as debts.
The average American do not know how to manage their money. Most have no idea how small savings can snowball overtime and think that investing is only for the rich or stock market experts. Well, who could blame them? Schools don’t teach that and most parents don’t know better themselves to teach their children about financial management. When it comes to financial education, you are on your own. Do not make the mistake of paying hefty ‘tuition fee’ later when you can educate yourself about money today.