When people think of debt problems, they often associate them with reckless spending on unnecessary luxuries. Although there is some truth to this, in many cases it couldn’t be more wrong.
The majority of people forced to file for bankruptcy are Just Like You. They just aren’t as lucky.
Take for example, the fact that 50% of all bankruptcies are caused by medical bills. And these people weren’t already in debt before they fell ill. Over half of them were homeowners, and the same percentage were college graduates. Over 75% even had insurance at the time they became ill.
Or what if you unexpectedly lose your job? If you’re living more or less paycheck to paycheck, this means you’ll likely have to start living off credit cards until you can find another job. A couple months of this and you’re looking at a serious amount of high interest debt.
Unfortunately, there isn’t any way to completely protect yourself against unexpected hardship. What is possible though, is being prepared when it strikes.
The best way to be prepared is by building yourself a cushion in the form of savings and an emergency fund.
Don’t think that you’re doing OK just because all your bills get paid at the end of the month.
Don’t think that having a few hundred dollars left over means you deserve to splurge on something you want but don’t need.
A healthy cushion of savings, say enough money to cover your expenses for 6 months to a year, should be just as big a priority as making rent or your car payment. Start off by setting aside 10% of each paycheck in a separate account that never gets touched. Make it easy on yourself by doing this through direct deposit if you can.
Don’t get lulled into a false sense of security because everything is fine Right Now. Remember that most of us are one or two bad breaks away from financial disaster, but you don’t have to be.
