Abusing debt is perhaps one of the most important financial mistakes that can lead to economic disaster. The lack of planning can make you not be able to control your costs and therefore have to constantly use the funding to address them. The clearest example is with a home, since normally when you decide to become independent and acquire a house or an apartment, you do not have enough capital to buy it. For this reason, you resort to debt through financial entities by which, in exchange for the use of the house. When you take on debt, you would have agreed to pay the remaining proportional part of the price of the same in X period of time and exchange for certain interest rates.
External Financing
The above example is somewhat common, which does not have to be worrisome under normal conditions. However, if in addition to housing, you use external financing to satisfy other expenses, you would have a problem. It is convenient to evaluate the situation and be aware of the situation in which you find yourself. Prepare a budget that allows you to establish what your expenses are.
If you do not do so, it is quite common to follow the slope and enter a spiral that forces you to pay the debt by borrowing more, and that it would be increasingly difficult for you to return to a situation of financial normalcy.
Is Debt Always a Bad Companion?
Although the word debt is always related to negative aspects, sometimes living with debt is the way to achieve more wealth and improve personal finances. For this reason, we must differentiate the debt categorized as “bad” from the “good” debt.
Bad Debt
It is the source of financing that you use when you intend to live beyond your means and acquire something that you cannot afford such as a luxury vehicle, or the newest mobile phone. These are liabilities that do not provide you with any kind of profitability. You go into debt to be able to buy them and for X amount of time; you will have to repay that debt, so your financial capacity during those months will be less.
Good Debt
Good debt is the type of financing that you use when your objective is to acquire an asset that can bring you profitability such as a home to rent, or an investment project, and one that generates wealth, thanks to the positive leverage effect.
Having Financial Goals
You can apply this fact to any aspect of life and, of course, also to personal finances. Without setting goals for yourself, it would be quite difficult to improve and your motivation would never be adequate. You would be like a ship in the sea with no fixed course, and you would drift without any ambition until you have reached any destination. When you have a financial plan and objective, it makes you choose wise decisions and mark the route to follow! In the case of finances, setting goals is essential to improving financially. It is important to plan and establish goals that allow you to draw up an action plan in order to achieve them without harming your economic well-being.
These are just some of the most commonly used objectives for those who want to improve their financial status:
- Save a monthly amount; spend less than you manage to do so
- Start investing and get a certain annual return
- Obtain sufficient emergency funds to pay for your possible sudden expenses
- Solve debts that you have had in the past and that do not allow you to grow financially
- Achieve financial independence and make money work for you
Conclusion
If you are clear about what kind of life you want to have in the future and what goals you want to achieve, it is best to plan and direct your efforts, so you can accomplish them in a certain time period! Check out Maxlend Reviews to learn more about how you can do this!
