How to avoid financial problems

Identify and avoid the main causes of financial problems, and save yourself the stress and strain that comes with them.

Most of us have had a time in our lives when we were financially in over our head. However, before things get to a stage where you are visited by colourful characters  named Knuckles or Johnny Clubfoot, you can take control of your finances and reel in your expenses to live within your means.

In our capitalist society some debt is bad, some debt is acceptable and some debt is even considered good. The trick is to manage the three.

Things like losing your job, getting sick suddenly, or a gambling addiction are extremely impactful on your finances and generally cannot be planned for.

In each case, your best bet when confronted with an  extreme situation is to contact your institutions and discuss options. You might even consider credit counselling.

For general financial day-to-day concerns, the basic rule of thumb is to not live beyond your means. Using credit cards to offset paying for things right away is fine, provided you are actually able to pay!

The fees for late payments are so high that getting in over your head and missing a few payments can quickly spiral into an amount you’ll have a lot more trouble paying down the road. By concentrating on buying only what you can afford (in any form), and making regular payments, you can better manage your cash flow.

Not all debt is bad. Major purchases like a house can actually boost your credit rating, even though you’re in debt at a level that can take a decade (or several) to pay.

Getting a bank to trust you means that other institutions are more likely to as well. Of course, it means you’ll have to ensure you’re making your mortgage payments consistently. There’s a reason so many people are"house rich but pocket poor." Experiencing some discomfort for carrying a mortgage can lead to greater financial freedoms down the road.

The main causes of financial problems include owing more than you can afford, buying items you don’t have the money for, using credit excessively, or not being able to honour your financial commitments due to lack of work.

By understanding how to avoid the main causes of financial problems, you can manage your finances to increase your credit rating and improve your chances of financial freedom.