1. Counting on a big score. You might have an investment which you think will be paying off big in the future, an inheritance that you are waiting for, a bonus you are sure you will get or a big contract for your business that is practically a sure thing. That is great, but the big mistake that people make, and you need to avoid, is spending the money before you have it. If something happens and the money doesn’t come through, or you get less than you were expecting for some reason, then suddenly you are in a bad situation because you have spent money which you don’t have.
2. Not saving money. Things happen. Emergencies or situations that you can’t plan for will arise and they will cost you money. Sometimes lots of money. If you have money saved (three to six months of living expenses is recommended), then you can use that money to pay the expenses that arise. If you don’t save then you don’t have this safety net and you are vulnerable to any situation that arises. If you lose your job and can’t immediately find a new one or if you suffer an injury and have to miss work, but you don’t have any money saved, then you are going to end up in debt.
3. Not knowing better. Some people don’t know why you would even want to balance your checkbook. They don’t understand interest rates or the impact of using credit. They are what people call financially illiterate. If this is you, you are not beyond help. There are books, websites (like this one), TV shows and experts who can help you understand the basics of personal finance and make you more effective at managing it.
4. Not communicating. Chances are that you are not alone in building up your debt. Often, one spouse may be a loose spender while the other isn’t. This doesn’t have to be a problem. If the couple talks about their habits, understands them and creates a plan and a budget to deal with them then there is no problem. Where the problem arises is if the couple does not talk about it. Sometimes couples who don’t communicate will both spend the same money, thinking that they are the only one. Also, a couple can find itself in trouble if one partner has credit that the other partner is unaware of. By talking you can save yourselves all sorts of hassles.
5. Medical expenses. If people let their medical coverage lapse, have gaps in their coverage or pursue alternative treatments that aren’t covered, they can create problems for themselves. Doctors take credit cards, but all that this means is debt for you. Taking the time to review your coverage, understand what is and isn’t covered and changing your coverage as you need to, you can save yourself a pile of debt without sacrificing care.
6. Gambling. Betting is a massive business in the U.S. Whether it is the wild new craze for poker, casinos, sports betting, bingo, lotteries or one of the thousands of other ways that are available, we are surrounded by opportunities to gamble every day. We imagine that a lavish lifestyle will come from our success, but the reality is that most people lose, or else there wouldn’t be so many opportunities to gamble. It is very easy to lose control and unscrupulous people will take advantage of this by offering you loans you can’t afford. Gambling is a very easy and often unconsidered way to build up significant debt.
7. Change in income. It has happened to everyone – circumstances mean that their income is lower than it once was. It could be a new job, the loss of a contract or the end of an allowance or investment income. All of these things happen, and they are far from a problem. Where the problem does arise, though, is when the loss in income is not matched by a decrease in expenses. People either don’t think about it, or else they assume that things are going to improve again. Either way, they fill the gap in income by accumulating debt. That can create all sorts of problems.
8. Poor money management. Most people make enough money for them to live on. As long as they are careful. The problem arises when people aren’t careful. They spend money as they have it without having a plan or keeping track of what they spend. They don’t know what they have at any given time, so they can’t plan how to use it most effectively. They are especially in trouble when an expense comes up which is unexpected or they forgot about and which they don’t have the money to pay. The simple step of writing down your income and your expenses and reconciling them can solve this problem and save you a very big headache.
9. Underemployment. When people lose a job, or one of their jobs if they have more than one, it is very easy to keep spending money like you still have a job, or spend like you know you are going to have a new job soon. Things don’t always work out like you want them to, When you find yourself temporarily underemployed it is very important to cut your expenses to build up as little debt as possible. Once you get a job again is when you can increase your spending.