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Friday, November 26, 2010

Why You should Have a Plan

There is no better way of getting yourself into debt than by not having any sort of plan for how to get out of debt. A budget works, but even if you don't have a budget, ask yourself this: the last time that you used your credit card, for whatever the purchase was, did you have a plan before you used it on how you were going to pay that purchase off? Here's a hint: I'll pay for it at some point in the future is not a plan.

The problem with credit cards and borrowing in general is that it seems like quick, easy money. And in many ways, it is. But you have to remember when you borrow money (and using a credit card is borrowing money) that you're borrowing your own money. You are, essentially, stealing money from yourself. That flat-screen TV? That new pair of shoes you don't exactly need? All of that ice cream because you're sort-of kind-of in an ice cream mood? That brand new car because you've always wanted a brand new car, even though your old car was working perfectly fine? When you charge those things on your credit card, you're essentially asking your future self for the money. And without a plan, you're future self has no better reason to have the money at that point then you have it right this second.

A budget is a great idea. It tells you how much money you have to spend, and stops you from spending more than that amount. But at the same time, a budget can potentially be nothing more than a week to week plan that stops you from losing money, but never actually makes you anything to save. It depends on your budget.

That's why you need to make sure that your budget is saving you money for emergencies and large purchases, or that if you don't have a budget, you're thinking about what you'll have to sacrifice or do in order to pay for anything that you're charging today. Even if it's just groceries, which you absolutely need, ask yourself: "I don't have the money for this today. What is going to happen in the future that allows me to pay for this as well as the groceries for that day?" Some answers may include a tax return,a better job, a paycheck that has been bolstered by holiday pay, money that someone else owes you, better spending and saving habits, or any other number of sources of income or savings. But not asking yourself these questions, and not worrying about (or at least considering) the future at all will lead to a future-broke-you, which isn't going to lead to any of the things you want.


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