3 Budgeting Tips To Help You Avoid Extreme Debt

3 Budgeting Tips To Help You Avoid Extreme Debt

Regardless of how much money you’re making, it’s always a good idea to have a budget. By calculating the amount of money that you’re bringing in each month and then basing what you purchase off of that number is harder for some people than they might like to admit. When what you’re spending outpaces what you’re making, it’s very easy to find yourself getting into huge amounts of debt, possibly resulting in you having to file bankruptcy.

Luckily, there are some simple budgeting principles that can help to make these disparities smaller and easier to manage. To show you how, here are three budgeting tips to help you avoid extreme debt.

Only Make Purchases You Can Cover With Cash

One of the best ways to ensure that you don’t wind up with crushing debt, according to Debt.org, is to only make purchases that you can cover with cash. If you don’t have the cash on hand to pay for something, it would be smart for you to not purchase that item at this time. While there are some exceptions to this rule, like if you’re buying a home or car, you should try to follow this rule throughout your life as a way to ensure that you don’t accumulate more debt than you can efficiently pay back to your lender.

Try The 50/30/20 Budget

Because different people have different relationships with money and different financial situations in their life, it makes sense that there would be a lot of different ideas and principles about budgeting. While one type of budgeting might work for your family member, that style might not fit well with your life. But despite this, there is a budget out there that’s relatively easy to follow and can work for almost anyone. According to Sean Pyles, a contributor to NerdWallet.com, the 50/30/20 budget is an easy, simple, and effective option for everyone.

With this type of budget, you spend 50 percent of your monthly income on necessities, 30 percent of your monthly income on things you want, and 20 percent of your monthly income toward paying off debt or building your savings. If you’re able to effectively follow this budgeting principle, you should be able to stay out of debt for the majority of the time and wind up saving a lot of that final 20 percent of your monthly budget.

Limit The Amount Of Credit You Use

Debt usually becomes a part of someone’s financial life because they’ve allowed themselves to use more credit than they have the money to settle. To keep this from happening to you, Latoya Irby, a contributor to The Balance, advises that you limit the amount of credit that you’re using. By keeping your number of credit cards low and not racking up charges on the lines of credit that you do have, you’ll be able to keep your debt ratios in check.

If you’re wanting to find some simple and easy ways to keep yourself out of debt, consider implementing some of the budgeting tips mentioned above.

To read more on topics like this, check out the lifestyle category.

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