|Are you living beyond your means?|
Published: Mar 28, 2012
“A good man leaves an inheritance to his children's children” (Prov. 13:22).
While many theologians would agree with this principle, economists would argue that given our present debt levels, both from a personal and government perspective, our generation is failing in moral and economic responsibility.
Debt is inevitable in the early stages of one’s life and can be a good option, unless you were born into money. Most people need to borrow money to buy a home, property, a car, or to start a business. Unfortunately, today the debt accumulated is primarily for consumer goods via the use of credit cards. We are not advocating that credit cards are bad, as it is virtually impossible to travel today without a major credit card. This is the way of the world. However, we believe that consumers must take inventory of their use of credit cards and use them primarily for emergency use.
Consumers should ask a few basic questions before pulling out the card. Do I need this product? Can I live without it? If I charge it, do I have the funds to pay the bill at the end of the month? This way you avoid or reduce your finance charges. In other words use the bank’s money while your money accumulates interest until the payment of the card in order to minimize or avoid interest payments.
Most consumers do not count the cost of their credit card usage. The average credit card charges interest of about 18 percent. This translates into approximately $1,000 each year in interest payments on installment debts. The result is that these debts reduce your future standard of living. (The average income in The Bahamas is approximately $19,000 per year.)
When expenses exceed income
Many Bahamians hope that their income will increase enough to pay the bills. This may happen sometimes, but it cannot be counted on. For many, average wages, after adjustment for inflation, have gone down.
Payments on mortgage and consumer debts absorb almost 75 percent of the average annual earnings. For some people, there’s not much left. One credit card is used to pay another; one bill is delayed so an overdue bill can be paid. Even now, many families live from paycheck to paycheck, with little or no reserves for emergency expenses. A temporary loss of a job would be unbearable. Because of the uncertainties of the economy, and even of our health, it is wise to get out of debt and to save a reserve for emergencies that will come.
Ten warning signs
Here are ten warning signals that can help you determine whether you are headed for financial trouble. If any apply to you, it’s time to take a closer look at your financial health. If three or four apply, you are in difficulty.
1. Using credit to buy things you used to be able to buy with cash.
2. Getting new loans or extensions to pay your debts.
3. Paying only the minimum amount due on charge accounts.
4. Receiving overdue notices from creditors.
5. Using savings to pay bills that you used to pay from checking.
6. Borrowing on life insurance with little chance of repayment.
7. Depending on overtime pay to make ends meet each month.
8. Using your checking account ‘overdraft’ to pay regular bills.
9. Juggling rent or mortgage money to pay other debts.
10. Using credit card cash advances to pay living expenses.
Rather than trying to live beyond your means, Bahamians must learn to be satisfied with what they have and to improve on it as time and money eventually permit. Keeping up with the Joneses, for example, can be a very unprofitable undertaking. The family that fritters away its income on expensive nonessentials may soon be wondering how their expenses are going to be paid.
The time to get out of debt is now.
First published January 18, 2012
|Last Updated on Wednesday, 28 March 2012 21:11|