It happens to the best of us. We are educated, smart women, and yet…
Somehow, some of us (many of us!) find ourselves in debt.
I scratched my head, again and again. “How did I get into this mess?”
Here are 5 reasons you’re in debt, with suggested solutions.
5 Reasons You’re in Debt 1 of 6
You’re Underestimating Your Spending 2 of 6
You might have a vague idea of where your money goes, but you're probably underestimating in a big way. If I asked you how much money you spend in restaurants or bars, what would you say?
My guess is you would probably underestimate it by at least 20%.
We tend to think ignorance is bliss. I know back in my carefree spending days I never knew how much money I was spending. This enabled me to say yes, every time someone asked if I wanted to meet up for something, no matter the cost.
Solution: Estimate then track your spending in different categories.
Image: Liquor shelf via Frugal Portland (that's me!)
You’re Overestimating Your Earnings 3 of 6
Sometimes, we think of our salary in terms of pure numbers, and we don't account for things that diminish our salary, such as taxes, Medicare, Social Security, etc.
This is problematic when we start spending. We think, "oh, I make $45,000 a year, I can totally afford this new shiny thing." This absolutely happened to me when I first was offered a job with a salary. I ended up in an apartment I could barely afford and spent like there was more money coming in than my bank account showed.
Solution: Assume 25% of your salary will disappear in one way or another. That is probably a generous estimate, but it's way better to have more money in your account at the end of the month than the other way around. So, in the above example, if the job is offering $45,000, assume you will bring home $33,750. Really makes you think again about your spending, doesn't it?
Image: Gorgeous ceiling in Cleveland via Frugal Portland (that's me!)
You’re Anticipating a Windfall 4 of 6
Whether it's an inheritance, a pay bump for finishing a degree, or (heaven forbid) you're banking on marrying someone with money, the underlying thought that somewhere down the line, there will be more money for you is extremely damaging. Relying on money from someone who will write you into their will is morbid, and relying on a vague future husband (whom you haven't even met yet!) is not good for karma.
Solution: Live within your means, girl! Learn to live with less than what you have. That way, if a lump sum does come your way, you'll be able to make a decision as to what to do with the money, rather than using already-earmarked funds.
Image: Multnomah Falls, Oregon via Frugal Portland (that's me!)
You Have a Fuzzy Concept of Your Future Self 5 of 6
This was a real wake-up call for me, and it's a hard concept. Until you look at it this way. Take your age and add 20 years. Now, ask yourself, who is that woman? What's her financial situation? Does your future self really have credit card debt?
No way. Your future self has it all figured out. She's saving enough money for now, she's saving enough money for retirement, she knows what it means to pay herself first, and she hasn't had credit card debt in years.
Solution: You are your future self. The woman in this picture is my nana, and she's one of the strongest people I know. She's been in charge of her finances her entire life, and one day, I'll be her age. When I am, I will be proud of the decisions I made, not angry with myself for being so shortsighted with money.
Image: My nana via Frugal Portland (that's me!)
You’re Not Paying Attention 6 of 6
This is really the root of it all. If you don't pay attention to your money, money will be in charge of you. If you hide from your bills, if you swipe without thinking through how you'll pay it off, you are not in control. You're giving up so much power when you don't know what's going on.
My experience with this still makes me sick. I had a HUGE credit card bill, and the only way I knew how to deal with it was not to deal with it. So I never looked at my paper statements, then I never looked at my online statements, then I never looked at my recent transactions. Somehow, through all of that, I overlooked an $89/month charge that I'd evidently opted into at some point that had something to do with job-loss protection. Well, I'd lost my job in that time, but I never used this. So, really, I was throwing away $1000 a year on nothing. What's even worse is that they were charging interest on this because I was carrying a balance. Of course they were.
Solution: Pay attention! Sign up for an account aggregator like Mint.com. See how your money comes in, and goes out. Pay attention to their alerts, too. They'll let you know when you've been charged an egregious fee.
Image: Tennessee countryside via Frugal Portland (that's me!)