US household debt has increased to almost $15 trillion. The highest in recorded history.

This debt is not just in the US, but a global phenomenon. Let’s face the reality, our salaries just cannot keep up with the rising cost of living. Every year things cost more, and our salary increase can’t match the increase in everything else.

We can’t blame everything on a bad economy, low salary increases or inflation. It is partly our fault as it is too easy to get credit. We live in the now and forget about tomorrow and the consequences of or actions. We want instant money but forget that fees and credit repayments diminish our disposable income. We live in a world of instant gratification, where ‘patience’ and ‘saving’ are swear words.

Why we are in debt?

• Lifestyle creep – this is the evil trap of as we earn more, we spend more. We need to realise that we do not need half of the extra expenses we incur e.g. a bigger car, a bigger house, three tv’s or a country club membership. Use the extra income to pay off debt and build up a nest egg or rainy-day fund. The less debt we have the more disposable income we have.
• Impulse spending – we live in a world of instant gratification. Impulse buys mean we spend money we did not budget for in our monthly expenses, like walking into a mall and spotting a sale and going crazy. These unplanned expenses happen frequently, and we should budget it into our monthly expenses. If we allocate an amount every month for impulse buys, we won’t increase our debt to get these bargains.
• Saving monthly has not become a habit so we tend to spend the money we allocate for saving. Pay yourself first and then pay the bills.
• Cost of living has increased dramatically - from school fees, groceries and vehicles to gym memberships, utility bills and clothing.
• Mortgage debt is up – Property prices are up, and we must spend more to get what we want. Also, a big mistake is taking the maximum mortgage when buying a house. It is at the top of your budget and in a few years, you might not be able to afford it anymore.
• Vehicle credit is up – The price of new vehicles is soaring, and vehicle credit is climbing. Consider cheaper or used vehicles. This is one credit purchase where the item purchased loses value the minute you drive it off the lot, but you still owe the full value plus interest. Think carefully before getting a new car. Must it be replaced now, or can you wait another year or two?
• Credit card debt increase – It Is too easy to get credit these days and just as easy to swipe a credit card when expenses arise. We rely on credit instead of cash in the bank to pay for unforeseen expenses or any extra monthly expenses. Leave your credit card at home to prevent temptation. *

Although cost of living is increasing exponentially, we are victims of our own making, and we lack the discipline to commit to saving and getting bad debt paid off asap. Reworking your budget with your financial adviser will help you get a realistic picture of your finances and help you to get the hangman’s noose of debt off your neck. [email protected]

 

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Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.