Expenses and Debt – Adjusting to the Great Debt Contraction

How to reduce expenses and debt – whether you are responsible for a country or you are the head of a household, you are looking for ways to cut back on spending and borrow less money. We’re all sharing a common experience affecting cash flow – The Great Debt Contraction.

So how do you look for ways to cut expenses and debt? A good place to start is by getting Bankrate’s view about how families get into debt.

A) Reduced income while expenses stay the same.

Too often we delay bringing expenses in line with a reduction in income for a host of good reasons and let debt fill the gap. The sooner you adjust to your new reality, whether it be temporary or permanent, the better off you’ll be.

B) Divorce.

Maintaing two homes and loss of tax benefits have a big effect on expenses.

C) Poor money management.

A monthly spending plan is essential. Without one you have no idea where your money is going. You may be spending hundreds of dollars unnecessarily each month and end up having to charge purchases on which you should have spent that money. Planning is no more difficult than writing down your expenses and income and reconciling the two. You will be surprised at how powerful you’ll feel when you are making thoughtful decisions about where and when to spend your money.

D) Under-employment.

People who experience under-employment may continue to think of it as only temporary or if they are coming off unemployment feel a false sense of relief. Yes, you deserve a break, but this is not the time. Get those expenses in line with your current income. Down the road if you increase your income due to more hours, a second job, or a better job, then is the time to start adding in some of the previous spending before you became underemployed.

E) Gambling.

You may think of it as entertainment but it is a guaranteed exchange of money from you to “the house.” It can be addictive, hard to stop and loans are freely available. Gambling establishments may be the only place you can mortgage your house while intoxicated and have it be legal.

F) Medical expenses.

Gaps in coverage, lapsed policies and increasingly costly alternatives make this a popular category. Most health care providers take credit cards. If you think it’s for convenience, think again. The medical industry wants to get paid at the time service is rendered. They know that if they don’t, the chances of their getting paid drops. This means more debt for you, less for them. To be fair, they are not in the lending business, but this only masks a bigger problem.

G) Saving too little or not at all.

The simplest way to avoid unwanted debt is to prepare for unexpected expenditures by saving three to six months of living expenses. With a savings cushion in place, a job layoff, illness or divorce will not cause immediate financial strain and increase debt. You always hear, “Pay yourself first.” Do it and it will grow and be there when you need it. No one has ever regretted having a savings cushion.

H) No money communication skills.

t is important to communicate with your spouse or significant other and your children about finances. Keep the lines of communication open and discuss financial goals and spending styles. If you are married to a spender and you are a saver, you will want to map out a strategy for you both to get what you want. Know what credit accounts you each have and promise each other to be honest about what each other spends. Many people find out that their spouses have racked up thousands of dollars in credit card debt and they had no idea that the accounts even existed.

I) Banking on a windfall.

Spending tomorrow’s money today is very tempting. Especially if you believe that tomorrow will come no matter what. A planned job bonus may not be a sure thing. The inheritance that you believe will come your way may not. The lesson is don’t spend the money until the check clears.

J) Financial illiteracy.

Many people don’t understand how money works and grows, how to save and invest for a rainy day, or even why they should balance their checkbook. The schools don’t teach it, your parents may not have sat you down and explained it. It doesn’t matter. You are responsible for your life and your money anyway. Financial mistakes are increasingly expensive and complicated to resolve. Get educated and get in control.

Related Information in Prosperity View

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