Make a budget so as to avoid debt

Sitting together and making a budget will help you focus on priorities. FILE 

By EVELYN SITUMA
 

 

Countless stories are told of friends and families who are trapped in a never ending debt cycle. Most people who find themselves in this situation end up with a feeling of total despair not knowing where to turn.

People have even been known to kill themselves because of debt. One can only wish such people knew that with proper planning, one can easily avoid debts and live a stress free life. And that even if you find yourself steeped in debt, it’s possible to come out of it and start life afresh.

According to Research and Development manager at Old Mutual, Isaac Maluki, it is possible to overcome unnecessary debts and walk in financial freedom, but only with conscious effort.

Credit card

Among the approaches he recommends are: keeping the credit card away and only using it on specific occasions mostly – business-related transactions, differentiating between paying for a need and a want, avoiding false acquisition and watching your lifestyle.

Sometimes, we may find ourselves hard-pressed to purchase one thing or the other which we think is important. It may be because you are hosting important guests and therefore you want to impress them with a new set of special leather seats or the latest technology.

With this in mind, you will probably head for the easiest source of financing, which will either be a credit card, or loan from one of those institutions offering what they describe as cheap loans.

While one may be happy that they have met their immediate needs by making these kinds of purchases, Maluki says the outcome is a false purchase, one that gives you the satisfaction and the notion that you have completed the transaction, yet, there is a laid out payment plan that will see you service the loan for months or even years.

Interest

Worse off is the high interest you incur on the loan, one which you could have avoided by being a little patient and making the transaction months down the line when the interest rate either goes down, or when you have saved for the item and are ready with cash.

As simple as the decision could have been, it will, in the long run, definitely lead you to debt, therefore, be cautious when seeking financing for items that are not urgent.

Credit cards are fun to have, they make life easy but, it is also an evil that can lead one to endless and painful debt. According to Maluki, credit cards should be kept at home while shopping. This way, it will shield you from overspending especially on items that were not budgeted for.

Ideally, the best time to use your credit card is when you are out of the country on business travel or holiday and you don’t want to carry cash around with you. This makes life easier when you need to refer to your receipts I case you have to fill claim forms with the office for refunds.

The transactions will be well laid out for you. Today, the ease of accessing money through the numerous sources of financing for people holding SACCO accounts, credit cards and bank accounts is tempting and risky. It is no surprise to find one using up all the above options to meet a variety of needs.

We can never overemphasise the importance of budgeting and living within one’s means. Budgeting helps with planning and inculcates financial discipline. It also helps one to identify and prioritise areas of need and focus on them.

 

 

One of the tools that will help you manage your payments is a bank standing order. By having one in place, you will be forced to make sure payments are made regularly and on time.

However, one should not live in morbid fear of debt to the extent that they keep away from borrowing even when doing so will help them achieve a goal. Loans are necessary if there is a serious aspect of your life that you need to improve on or if you take one in order to invest.

It is better to take a loan for investment even if it takes long to repay rather than borrow money to buy a car or for home improvement. For these, you need to save and buy only when you have the money for it.