How to Manage Personal Finances and Avoid Going Into Debt

If you have never taken a personal finance class or you were never taught by your parents or any other mentor how to manage your money once you reach adulthood, it is frighteningly easy to slip into debt.

And if you start falling slightly into debt, it can be a very slippery slope from accruing a small debt to amassing a much larger and much more intimidating debt. However, there are some basic steps you can follow if you want to better manage your personal finances and avoid going into debt.

Difficulty: Challenging

Instructions

1. Pay yourself before paying anyone else. That is, if you have a steady job, set aside as much of your pre-tax income as you can in a savings account (perhaps 10 or 15% of your pay). If you set aside that money in your savings account (as opposed to a checking account) and you really treat that account exclusively as a savings account by not making any withdrawals from it, you are well on your way to achieving financial security. Avoid temptations to make withdrawals from this account. Tell yourself these funds are not ever to be touched, except perhaps in the case of dire emergencies, and then really stick with that plan. If you save this percentage of your income every week, you will be quite impressed with how much money you can accumulate in your savings account over time.

2. Spend below your means. Many people spend more than they earn, accumulating a lot of extra debt on their credit cards without thinking about how they are going to pay that credit card debt off. If you develop a frugal lifestyle right at the outset of adulthood, however, you will be setting a great pattern for yourself. The sooner frugality becomes a habit, the better, not just for you, but for your loved ones as well.

3. Do not fall behind on paying your bills under any circumstances. If you always pay your bills on time, you are getting into a great financial habit, and you will also avoid having to pay any late fees for falling behind on bill payments.

4. Avoid using credit cards as much as you possibly can. Accumulating too much credit card debt is another big mistake that a lot of people make. Whenever you can pay for goods and services in cash (or with your debit card) instead of using a credit card, be sure to do so. Why pay all that interest that credit card companies charge if you don’t have to?

Tips & Warnings

• If you slip up or splurge one month, don’t be too hard on yourself. You are only human, after all. Just be sure to get back to the frugal spending habits you have been working so hard to establish during the following month (and the month after that, and so on).