Ways To Stop Living From Paycheck To Paycheck

by Pam on December 15, 2010

Did you know that 6 out of 10 Canadians live from paycheck to paycheck?  What’s worse is that almost 60% of Canadians would be in serious financial trouble if their pay were delayed by one week.

These are disturbing statistics, so what are we going to do about it?  It is obvious that more and more of us are taking on more debt than we can manage.  Is it due to greed or trying to keep up with the Joneses?  What compels us to sink into so much debt?

I am extremely adverse to debt.  This can be a good thing, but it can also work against me, as using debt properly as leverage can be really important for building a healthy net worth. There is such a thing as good debt, yet I still struggle with owing money to the bank.

I don’t want to oversimplify things, but if everyone just bought what they could afford, rather than delaying payments until 2012, and if everyone was satisfied with what they had instead of always wanting to buy more, people wouldn’t have such a financial burden to bear.  Living a little below your means, or even within your means is a safe bet for a fairly stress free financial life.

What do we need to do to help ourselves to stay out of harmful debt?  Mainly keep these basic principles in mind:

1.  Only buy things that you can easily afford to pay for with cash either right away or within a very short time of the purchase.  Of course, buying a home would be an exception but at least mortgages have relatively low interest rates compared to other kinds of debt.

2.  Only use credit cards if you know you will absolutely pay off the full balance when it is due.  Otherwise, do not use them at all as you will pay way too much interest.

3.  Live within or slightly below your means.  Just because you earn enough to supposedly be able to afford a huge home, buy something a little under your budget so that you have extra money for other things.

4.  Set up a savings plan so that every time you get paid, a certain amount is automatically contributed towards your savings and investment accounts to save for emergencies and retirement, etc.  By paying yourself first, when life gets messy and you need the funds, you won’t have to rely on debt to cover the costs.

Although these tips are fairly obvious and have been talked about so frequently, I think they should not be underestimated.  By following the above behaviors Canadians have a shot at succeeding financially and preventing themselves from getting even deeper into debt in the future.

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