A US News and World Report article entitled “5 Financial Disasters to Avoid“, focused on five potential pitfalls that could prove harmful for our life and money goals. As I read through the list, I began to realize that so far, I have avoided them all. In fact, to me, they didn’t even seem like disasters but more like regular aspects of personal finance, the avoidance of which is just a part of being financially responsible. However, things are often relative, and what might seem commonplace to one person can seem quite strange to someone else. So here is how we managed to avoid the five financial “disasters” laid out in the article.
“Getting into credit card debt”
We’ve done our best to stay out of credit card debt. To help us, we’ve done several things. First off, we’ve built an understanding of just what debt can do to our finances. According to creditloan.com, the average American’s interest payments on debt are around $600,000 over the course of a lifetime. This is a strong motivator to avoid such debt. Therefore, we keep an emergency fund of around $5,000 available to guard against a variety of unexpected financial emergencies. We also build a smaller reserve fund of $100 to $200 into our monthly budget to help guard against smaller, irregular occurring costs for things like birthday and wedding gifts, school expenses, car and home maintenance issues, and the likes.
“Marrying a spendthrift”
I’ve seen many comments on financial articles berating or blaming a spouse – or ex-spouse – for the financial woes of a family. Thankfully, this isn’t the case in our situation.
Before my wife and I married, we lived together for multiple years. In this way we got to know one another’s financial habits well, and we were able to “work out the kinks” so to speak, well before marriage. We were also able to use this time to pay off our individual student loans and become debt free before entering into the financial bindings of marriage. In this way there were no surprises, and we learned how to communicate regularly about financial issues, another key to our ability to sustain a financial relationship.
“Failing to develop a savings habit”
Starting young can help develop good financial habits, but rarely is it ever too late to start good money and saving habits.
One way in which our family has strengthened its financial habits is through our children. Working to teach them about money and saving through things like savings accounts, tracking their money, deciding how to save and spend their money, and even simple saving techniques like filling piggy banks, makes us all think more about money and how and where it should be used.
Another habit we use is our expense tracking to build our saving habits. I like to track our costs and see where our money is going. In the process, it makes us more knowledgeable of our money, where it is being spent and how we could reduce our expenses.
“Worrying too much about others”
Worrying about what others have or what we don’t is something we’ve never really had a problem with. And in turn, it’s opened a variety of money-saving doors to us. Not only do we not have to “keep up with the Joneses” so to speak, thereby avoiding having to have the latest and greatest or biggest and best when it comes to houses, vehicles, and technology, but we’re able to do things like shop at resale stores and garage sales without worrying too much about what other people think.
In such ways, we’ve been able to downsize our single-family home to a smaller condo, reducing our home-related costs from an average of about $2,300 a month to closer to $800 a month. We also drive an older vehicle that is paid off, and we can shop resale for many of our clothing needs, allowing us to cloth our family of four for around $300 to $400 a year.
“Having no idea where the paycheck went each month”
I track multiple facets of our financial life. In this way, I’m able to see where our money comes from and where it goes. I track not only our income, but I track our expenses (breaking certain expenses for things like housing and utilities down further), and our overall asset total as well. This provides me not only with a tool to plan for the future, but to look back at and see where our overall successes and failures have been, and where there may be room for improvement. Simple spreadsheets are enough to accurately gauge these areas, giving me enough clarity to see our progress but not making the task too arduous or time consuming.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.