Struggling with debt is not easy. It takes a toll on your emotional and physical well being. But understanding the root cause of our financial problems is the first step to getting out of the darkness…
And that often means getting back to basics.
A back-to-basics method will help you figure out where you are now and where you could be financial.
To identify problem areas, we need to break down our current spending.
Do you know how much you are spending on food every month? Or on things like alcohol and entertainment? Or even fuel? These types of expenditures are fluid expenses, meaning they usually aren’t fixed amounts. And they can easily rack up.
Then you have your fixed costs such as rent or bond payments, car finance, insurance and so forth. Do you know the exact amount you spend on fixed costs every month?
When you know where your money is going every month, it becomes easier to look at your spending holistically.
Once you’ve broken down your spending, it’s time to review your real “needs” versus “wants”.
Knowledge is power…
Understanding the difference between your financial “wants” and “needs” will help you make insightful spending decisions. Small spending decisions you make now, influence your future financial security.
To a great extent, our future wealth lies in our ability to make sound choices when spending money. However, most of us tend to overspend on things we do not need. And many of us believe the things we “want” are things we “need”.
There is certainly nothing wrong with having things we want in our life. But when we start accommodating these “needs” with credit every month it can be a dangerous game.
The result? Debt can spiral out of control very quickly.
To regain control over our spending, we need to understand the difference between financial “needs” and financial “wants”. And we need to know how much money we are spending on these “needs” and “wants”.
A financial “need” is something we must have in our day-to-day life to survive. These include things such as a roof over our head, water, food and even transport.
A financial “want” usually includes the obvious things such as eating takeaways every weekend, days out or buying the kids treats.
But it can also be a car repayment we can’t really afford because we want a nice car. Or it could be an expensive property rental because we want to live in a prime area.
Let’s unpack the two differences here:
How to recognize WANTS
“Wants” are unnecessary expenses that make our life more comfortable. We don’t need these items to survive. We tend to spend money on “wants” to make life more enjoyable or to impress other people.
We rarely need the latest car on the market, but we want to drive a comfortable car that also looks good. So we go ahead and trade in our vehicle and where we most likely end up with a higher repayment.
In most cases, WANTS are the reason that people get trapped into the debt spiral, as they do not realize at the moment that this will cause a change in their monthly budget.
If you are struggling with debt, it might be time to re-evaluate the money that is being spent on “needs”, but is also highly influenced by our “wants”.
How to recognize NEEDS
We all have basic needs in order to survive. In most cases, these are recurrent expenses each month such as food, rent, the repayment on our current vehicle, utilities, and fuel.
These expenses are basic costs each month that we cannot live without.
Our “needs” are the bare minimum that we need in life in order to survive.
It can be a big pill to swallow when we realise we are spending too much on our fixed living expenses. And it becomes difficult to get out of it when it includes things that we signed an agreement to pay every month, such as our rent or fancy gym membership.
WANTS disguised as NEEDS
We have to be careful with perceived needs and real needs such as our rental agreements, insurance and clothing.
Do you really need that large house or do you need it? Can you not look at a cheaper rental with just enough space you and your family need? Really evaluate how much you “want” that extra space.
With regards to insurance, you need to speak to your broker to evaluate your premiums. This should be done often to make sure that you are not paying too much.
Clothing is also a necessity. However, do you need to buy new clothing every month? It can be difficult to separate between our “wants” and “needs”. But if we are struggling every month, and the amount of debt we use continues to grow in order to accommodate these “needs” and “wants”, it may be time to seriously reconsider our spending habits.
So how do we get out of this?
We first need to create a budget. Or if you already have a budget, you will need to sit down with your monthly budget and rearrange your budget to make sure that everything that you have on your budget is actual “needs” and not just “wants”. This will also help you to cut back on expenses.
If you do not have a budget, you can use this free budget template to get started.
But what if you’ve cut back drastically and it just doesn’t seem possible to live without debt despite your “needs” and “wants” being considered?
Should you find yourself in a position where you cannot afford all your monthly expenses, Debt Review might be the solution for you.
Debt Rescue has assisted over 30 000 consumers and is currently the number one debt counsellor in South Africa.
Simply complete the below contact form and one of our expert consultants will contact you with the best solution based on your current situation.