Perhaps the best advice ever written about debt came from the British novelist Charles Dickens, who had one character advise another that a happy life depends on making sure that outgoing funds never exceed incoming ones. Well over a century later, that guidance remains as relevant as ever.
Understand your income and expenses
A first step in avoiding the debt trap is to understand three things about your finances: your monthly spendable income, your required expenses, and your discretionary expenses. Young people often start out spending beyond their means because they have underestimated their true spendable income. Due to a variety of taxes, the amount each of us has to spend is significantly less than the sum we think of as being our disposable income.
An individual’s net income must stretch far enough to pay for essential items things such as rent, food, and clothing. Whatever is left over is available for either discretionary spending or saving. The amount “left over,” however, is not a constant even if net income remains unchanged. This is because required expenses (Read More....)
