Reduce over-indebtedness

There can be many reasons that can cause a person to become over-indebted, such as:

• wasteful spending

• Spend a large amount of money

• Overcommitment

Effects of over-indebtedness on a person:-

Over-indebtedness not only causes financial losses, but also affects physical and mental health.

• Physical effects:-

An over-indebted person begins to ignore their health due to stress. He doesn’t eat enough. So the person can become obese from overeating or weak from loss of appetite resulting in illness in both cases. He will also not be able to pay attention to his work and may even get fired from his job. There are also some people who overwork to earn more money, which leads to poor health.

• Mental effects:-

According to some researchers, over-indebtedness is the leading cause of mental illness. An over-indebted consumer may become a victim of depression due to fear of losing valuable assets and developing bad relationships with family members, colleagues, or bosses. Negative thoughts begin to enter his mind and he may even commit suicide out of slander or feeling guilty for not fulfilling his family’s responsibilities. Some people also start using alcohol, drugs, etc. to overcome stress.

How to create an adequate budget?

It is the most important step in determining your financial condition. The steps to create a budget are:-

• Calculation of both types of monthly expenses, that is, variable and non-variable. Variable expenses include gas, groceries, etc., while invariables are student loans, car insurance payments, etc.

• Calculate your average monthly income and then subtract your expenses. This way, you will know how much money you spent in the last few months.

• The final step is to follow the budget rule, that is, the 50/30/20 rule. According to this rule, you must spend:

1. 50 percent of your income on your needs like utilities, credit card payments, etc.

2. 30 percent on your enjoyment factors such as entertainment, shopping, etc.

3. 20 percent for debt and savings.

4. Don’t use a credit card to cover shortages.

Financial Wellness Tips:-

1. Pay off your high interest debt first:-

It is one of the best tips that can greatly reduce the risk of over-indebtedness. You should try to pay off your high interest cash loans as soon as possible. You can also make monthly online payments through online banking.

2. Cut your spending on luxurious things:-

You should spend money according to your financial status. You should not spend too much money on luxury items like expensive mobile phones, cars, decorative items, electronic items like LED TVs, air conditioners, etc. Buying high-priced jewelry and accessories should be avoided. If you can shop according to your basic needs, then you can easily save money.

3. Future planning:-

You need to secure your future so that the worst situation can be easily handled. You should also start thinking about your retirement plan, whether you are a young person or a middle-aged person. Saving money in an emergency fund can be very useful, helping you in the time of an emergency, such as accidental injury, financial loss, etc. This fund should be kept separate from your regular savings account so that you cannot easily access it. Your goal should be to save 6 months of salary in this fund. Use scheduled payments or stop orders to easily save money in this fund.

4. Reduce utility bills:-

Most of the household expenses come from utility bills. You must find some ways so that these bills can be reduced. Electricity bill can be reduced by using compact fluorescent bulbs or LED bulbs and installing the programmable thermostat or power strips when you leave the house. If you are not using electrical devices, you should unplug them. You can also minimize your water bill by avoiding wasted water.

5. Use of public transport:-

Lots of money can be saved on fuel price, car payment, maintenance, etc. using public transport. Since public transport is affordable, everyone can use it comfortably. They also reduce traffic congestion as well as fuel. If you want a car to go somewhere urgently, you can use ride-sharing services like Uber. Carpooling is also a great idea to reduce the cost of cars.

6. Cut Insurance Bills:-

Look for auto insurance that goes down every month instead of going up every year due to inflation rates. Even as the value of your car depreciates, many insurers will increase your insurance annually. Get quotes annually, and if your current insurer can’t beat the competition, then it’s time to move on. The Retention/Cancellation Departments are authorized to grant significant discounts to retain a consumer who wishes to cancel their policy.

7. Investments and Withdrawal

Start saving for your retirement early in life. Use an online calculator to see if your payments are enough to reach your retirement goal. A retirement annuity can help you save on taxes each year. Review your investments annually. Try to diversify so you don’t put all your eggs in one basket.