Debt is playing a big role in our lives in that it is causing financial hardships in our daily activities. Debt can be incurred when we go shopping, when we go out for entertainment, when we want to educate ourselves to get a career and when we do not pay attention to our household income through realistic plans or not having a budget at all. These are just some examples of debt being incurred and there are many more situations that I can make a list of. The reason for this article is to acknowledge why debt happens so that one can take this as a way to avoid it. Below I will provide 3 reasons people get into debt.
1. Our impulsive mindset
We as a human species have always been attracted to items that we see whether back in the ancient days of strolling in a bazaar to the modern day commercial shopping centres. We look at an item, interact with it and once we see that the item is very handy we become attached to it. We see the price of the item but the price we just overlook and think of ways that we can get that item.
We may look at the item of interest and then leave for the day but the impulsive mindset plays games on us saying that we have to get that item either today, tomorrow, this week or within a month.
The impulsive mindset thinks in short periods of time when it comes to wanting an item.
When the time comes in that we become weakened due to our impulsive mindset and let it win, we will get the item by purchasing it at a store, warehouse, dealership, kiosk and spend it using money most likely beyond our means. We have just fallen into the debt trap. From here the average individual does what the impulsive mindset says.
Being too much of an impulsive buyer or spender is not a good thing and will cause problems not just on ourselves but on our family. We can become so out of control that we will go to friends and family to ask to borrow money promising them to pay them back and we know what the end result will be.
We can categorize impulsive buying or spending as gambling which slowly becomes an addiction and then turns out to be a disease. We cannot know when to stop or how to stop it as it is like a parasite just wanting more and more food.
2. To live and imitate the luxury life
Have you ever see that gorgeous Armani dress on a famous actress, the latest Maserati owned by a young corporate CEO, the huge three storey yacht with a heli-pad owned by a billionaire, the 5-stone diamond gold engagement ring worn by a Hollywood actress, the black Calvin Klein men’s suit worn by a wall street executive? It is such a marvel to see these things and again our impulsive mind takes over.
We want to be like the successful person through their lifestyle, what types of clothes they wear, the type of home they live in, the type of car they own, the accessories that they wear, the places they go while vacationing. I agree that it is a great life worth living but it is all material and entails a great fortune totally beyond our means. Unfortunately ego comes to play and if this person can have this luxury then we want that too.
Many individuals have tried to live the luxury life and end up finding themselves in deep financial troubles where they will lose the material items that they, through their egoistic mindset, went ahead with. In the worst case, everything is lost, the family is affected and health concerns start to come up. The great example of this is the Financial Crisis of 2008. Individuals and families in the United States lived lives way beyond their means due to this subprime delusion, owning million dollar homes on a part-time or full-time average job. All this because of banks giving away loans without checking financial backgrounds and the average individual willingly accepting it.
3. Not knowing how to manage our household income
The average household generates a certain amount of income based on the job that they work in. The income that comes in is limited and varies from person to person. With this, the living style of the varying income brackets is not the same as the individuals can be part-time students, factory workers, bus drivers, accountants, cashiers, salespeople. The individuals may be single, married with no children, married with children, divorced, or widowed.
With the above showing the different income brackets, there are different ways when it comes to the living expenses. Are the people above owning or renting, are they paying utility services, do they own a car or commute? If they have jobs, do they have benefits to cover for their medical bills? If they are going through government services, is it helping with their food, clothing, shelter?
The problem that is facing the average household is how the money coming in is managed. We have not been educated when it comes to managing money, budgeting, how to live within or below our means, ways to adjust our income when it comes to unforeseen events, how to save money. This is the reason why we hear of the average household in debt and living over their means. This is through bad spending habits, impulsive buying or spending as I have mentioned in this article and not paying attention to our assets versus our liabilities.
I admit personally that I was not taught in school of paying myself first, living within my means, how to save money and the percentage I should allocate to an emergency fund, how to control my mindset and think about the needs versus the wants and how to avoid debt. All this I had to learn through my parents or myself the hard way. I believe that others will agree that education on money management and financial literacy were not in the top priority or even presented when in school.
What I see now is that we are helping each other by giving tips and advice through the internet, radio shows, tv programs. It is from experience that allows us to learn how to manage our money and follow through budget plans created by us, friends, family or even through financial counselling.
This should not happen and anything that deals with money or credit should be educated to children around the world and a mandatory program from elementary to secondary school. Just as we go to college to gain the practical experience in order to be successful in obtaining employment, the same concept should be applied with finance to children to obtain financial stability in their lifetime.
Debt should not be a part of our lives and we need to understand it to be able to get rid of it and or avoid it. If debt does incur then it should be reasonably within our means to pay it off. We have to live our lives and not imitate others. It is not worth getting into debt for something that will entail hardship. Money does not buy happiness; it is how we live our life and with purpose.