21.03.2023

HOW TO AVOID A DEBT SPIRAL - WHEN THE SALARY IS NOT ENOUGH TO COVER OUR EXPENSES

We've already discussed the topic of payday loans and when (not) it's a good idea to use them. The main rule for fast loans is that they should be an exception and not become a common practice for getting out of a difficult financial situation.

But what to do if the salary is systematically not enough for you? Taking out one loan to cover another can put you in a debt spiral that will be hard to get out of. However, the same can happen with the accumulation of loans to your loved ones.

Loans from friends and relatives are also a double-edged sword. Although there is (probably) no interest with them, history knows quite a few cases in which close people ruined their relationships even for small sums. Therefore, it is good to adhere to the maxim: "Clean accounts - good friends". Here are the alternatives:

Ask for a raise

If you like your current job and the only downside is that it doesn't pay enough, then maybe it's time to ask for a raise. Schedule a meeting with your manager to discuss opportunities for growth and development within the company. You need to think through your requests in advance and clearly state to your boss what you can give in return. Be open to the idea of not only a salary increase, but also a promotion to a new position.

Look for a new job

Sometimes, no matter how hard you try, you may not get the desired increase in your salary. If your salary is systematically falling short, it's probably time to think about looking for a new job. When applying, always highlight your experience and aim for a better salary offer. Sometimes refresher courses can help you with this. Or you can retrain to a higher paying field, but keep in mind that starting from scratch is always harder.

Look for additional income

Do you love your job because it gives you great personal fulfillment and satisfaction, even though it doesn't pay you well? Then think about how to earn extra income - whether in the form of starting a side job, starting your own business or passive investments. The advantages of additional income are that you determine when, how and how much. There is no negotiation with the boss, and there is no limitation of ideas. Let your creativity work for you and think outside the box.

Don't be afraid to ask questions

When it comes to money, people often avoid talking about it because the topic makes them feel uncomfortable. This applies to both the have-nots and the haves. But to better manage your finances, you should learn to seek advice from people who have more experience. This will help you explore different ideas and strategies for managing your finances effectively. You can even get free financial advice on managing personal funds.

Create a budget and stick to it

Any financial advisor will give you one basic piece of advice – make a budget, follow it and make adjustments until it starts working in your favor. A budget should outline the ratio between your expenses and income - so that you can plan your expenses and limit overspending. Learning to spend your money more wisely will help you get ahead financially. Once you're in control of your budget, you'll be in a better position to ensure your spending habits match your savings goals.

Set savings goals

And on that line of thought – one of the most important steps is determining your short-term and long-term savings goals. Financial goals are where you want to be with your money in the next 5, 10, and 20 years. What do you want to achieve? How long will it take? What are the implementation steps? Write down your goals and post them in a prominent place to serve as a reminder and motivation. Only when you have a clear vision will you be able to make financial restrictions for the sake of your dream.

Income - Savings = Expenses, instead of Income - Expenses = Savings

By rearranging the equation, we are actually prioritizing savings over spending. This means that the moment we draw our paycheck, we allocate the money to savings and spend whatever is left after that. This limits unnecessary spending – you have to learn to say no to things you don't need. Managing your finances requires a lot of patience and hard work, but these daily "sacrifices" will definitely pay off in the long run. If you constantly work on this, your financial situation will provide you with peace of mind and expand your options for decisions that have a great effect on the quality of your life.

Change your lifestyle

As a rule, your lifestyle expenses increase as life progresses. As your family grows and your needs change, the amount of money you need to finance your lifestyle grows. Large household purchases, children's needs, rent/mortgage and any other monthly expenses can add up, especially if you spend more than you save. If you often find yourself overspending, it might be time to consider more budget-friendly purchases – like second-hand clothes and appliances. Some classifieds sites and social media groups even have items being given away.