How To Avoid Debt In The New Year

With a new year come resolutions to better yourself and improve your finances. Some readers might be looking to finally get out of debt for good this new year. Others might simply want to pay off the debt they incurred over the holidays. Regardless of which camp you are in, there are a handful of ways to decrease the odds of getting into debt in the new year.

Set Up Savings Goals

For many people that get themselves into debt around the holidays, it’s because they don’t have a budget. Iím not going to talk about the importance of a budget in this post, but instead focus on savings goals. You see, I was like you. My finances were humming along fine until December came around. Then I would get myself into debt. I would spend the next few months paying off my debt. I knew there had to be a better way.

To solve this issue, I decided to do what I do for my car insurance. I pay my car insurance premium semi-annually, so I take my semi-annual premium and divide by six to get a monthly amount I need to set aside or save in order to make that insurance payment. Then, I divide that amount by two and set up automatic transfers to my savings account twice a month when I get paid.

With the holidays, I get into debt because I don’t have anything saved for gifts. So, I took what I typically spend (or the amount I go into debt) and divide that by 11. That number is how much I need to save each month to ensure I have enough money for gifts without going into debt. Note that I don’t divide by 12 since I need the money before December. If I divided by 12, I would still be short a small amount of money.

Learn To Save First

The best advice I can give you is that you need to learn to save first, spend second. Most people do the opposite and they spend first then save what is leftover. Since there is usually never anything left over, they end up saving nothing.

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Set up automatic transfers from your checking account to your savings account when you get paid. This ensures that you will save first. When you look at your account, you know you can spend all of that money if you so choose because you already saved money. The key though is to only spend what is left in your checking account and not overspend and go into credit card debt.

Live Within Your Means

That last sentence leads us into the final tip for avoiding debt in the new year: learn to live within your means. If you never learn to live with what you have, you are always going to be repeating this cycle of getting into debt and paying it off, just to get back into debt again.

That’s no fun. The idea is to get ahead with your finances so that you have less stress in your life. If you arenít getting ahead, you are just going to spin your wheels and stay stuck. No one wants that.

Learn to be happy with what you have and to delay purchases until you have the money for them. It may not sound like fun, but chances are you donít ìneedî the item you so desperately want.

Final Thoughts

Getting out of debt and staying out of debt is easy to do once you have the groundwork laid. First, understand large future purchases and save up for them over time. Itís painless, trust me. Next, learn to save first and spend what is leftover, instead of the other way around. And finally, learn to be happy with what you have and live within your means. Chances are you make the fateful mistake of making wants into needs.

3 Responses to How To Avoid Debt In The New Year

  1. I completely agree with you about learning how to save and to save first. I’ve been telling folks how to find money by cutting expenses, saving where you can and to stop spending. You’ll hear some financial gurus respond that the key is to earn more and invest.

    I have to argue because the vast majority of folks are still trying to figure out the savings habit. By letting them know they don’t have to make extra money in order to save is an important message. You can cut expenses, save where you can and stop spending.

  2. dojo says:

    Living below your means is always a great idea. Save money and keep a budget, with these little tricks and a lot of consistency you should be doing very well this year ;)

  3. Learning to save first and then spend is the best deterrent to getting into debt. I’ve also found that striving to save makes you want to spend less because of all the effort you put into saving the money. Nice post, will benefit many young adults.

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