It could be difficult to kick your borrowing habit if you are habituated to instant cash services. Every individual encounters a cash crunch at some point. There is nothing wrong with tapping loans or overdrafts to get money. However, borrowing and more borrowing = high debt. It may become hard for you to re-track finances and pay the dues. Therefore, analyse the reasons behind low savings by the month end. Why do you struggle to save enough?
It could be unregulated expenses or living beyond the means. Moreover, prioritising luxuries over investments also affects your savings. It leads to panic in an emergency, and you borrow money. So, what can you do to kick your borrowing habit? Can you possibly do it? Yes, of course you can. The blog lists the strategies that may regulate borrowing money and improve your overall financial situation.
What triggers an individual to borrow money?
The aspects that make one borrow depend on the person’s income, expenses, urgency, and desire. These things make one explore the best and cheapest ways to borrow money immediately. Here are other reasons that may trigger an individual to borrow money:
- Cover gaps between fluctuating income
- Pay an urgent bill in the absence of sufficient savings
- Hard to skip credit card promotional offers
- Ease of availability of loans and credit cards
- The satisfaction of paying the dues later and meeting needs now
Such critical, panic-ridden moments and emotional aspects make one check borrowing options. One must tap it only if the person seriously lacks the means to pay for the need. Identify and compare the options if you share a low credit history. You may get small loans with bad credit scores at better interest rates. You just need to reveal a consistent and lengthy employment history and income.
It decides the amount you may get for your needs. It is an easy and simple process to get loans the same day. However, don’t make it a habit. Always explore your savings from every income ( salary, part-time, rental, dividends), etc., before borrowing money. It will prevent you from taking over unnecessary debt.
Strategies to kick your borrowing habit and re-track finances
Most individuals grab good-looking credit card offers without a second thought. The realisation later may affect your finances. It may get you thinking- How do I stop the habit of borrowing? What triggers should I look for before borrowing money? Yes, this counteraction is important. It will help you identify the ways to control the urge to borrow money.
The first thing is understanding and scanning every penny you spend. Analyse your bank statements for your previous expenses like credit cards, holidays, apparel, and dining out. Check how much you can save by removing such expenses from your monthly budget. In this way, you can kick your borrowing habit consciously and wisely. Here are other aspects that may help:
- Create a spending plan
Knowing your finances inside out will help you create a spending plan. You can decide how much you must spend on debts and other lifestyle needs. For example, you can have good debts if you can regulate them well. These are important to grow your lifestyle financially. It could be – a mortgage, a student loan or a business loan. However, you must plan the repayments within the budget itself. Here is how your spending plan may look:
| Expenses to focus on monthly | Expenses to avoid/regulate monthly |
| Utility bills- €1500 | Shopping apparel- €5000 |
| Rent- €12000 | Weekend gateways- €7000 |
| Mortgage payments- €14000 | Dining out- €3000 |
You must focus on expenses that you cannot do without. It could be transportation, rent, council tax, etc. Alternatively, try to balance your wants like buying clothes, movie tickets or dining out. Yes, you can do without them. However, you don’t need to cut the fun.
Note: Always remember that you must save at least 20% of your income every month. It reduces the chances of borrowing. (For example, if you earn €45000/month, you must save at least €9000. You can save it in the form of an emergency fund, investments, retirement fund, etc.
- Create a strategy for bill payments
As MoneySavingExpert puts it, “ Try to save money on regular expenses like credit cards, and broadband bills by shopping around for cheaper deals.” Similarly, if you cannot switch the water supplier, move your water meter. Can you save some money by installing an energy-saving one? You can also try to haggle over the broadband and mobile contracts. It reduces your monthly liabilities significantly.
Alternatively, if you hold multiple credit card debts, use a balance transfer card. It helps you clear the dues with just a single payment. You don’t need to go for one if you have fewer than 4 cards. Make sure to pay the bill before the 0% introductory period ends. Otherwise, you may expect high interest and costs.
- Use insurance or fixed deposits well
If you have coverage like Fixed deposits, Insurance, or SIPS, use them wisely. It is indeed a good decision to invest in insurance and Fixed deposits. It prepares and safeguards your future. You may also leverage equity in your assets to pay for an urgent requirement. However, it should be the last option. Instead, if you have matured insurance or FDs , identify the usage.
You can use a part of the FD to fund your expenses. It reduces the possibility of seeking a loan. However, if you have plans to use the money, don’t worry. Check loans without a guarantor to meet your requirements. It grants freedom and flexibility to counter cash needs without a third-party presence. Moreover, the repayment structure aligns well with your current liabilities and budget. So, it does not affect your finances. Instead, regular payments may help you build a sound credit rating.
- Prepare for emergency expenses
Most individuals check out the quick borrowing options to counter urgent needs. They do so without comparing the best options. Instead, grab the one they spot first. You may lack time to compare options, however, you must.
It may affect the total interest and the money you pay overall. If you want to get rid of the constant pressure of unplanned expenses, set an emergency fund. It helps you relax even if you lack cash presently. You can tap the fund to meet your requirements.
You may create one by saving a fixed amount monthly or weekly. Choose the tenure according to your comfort. Next, choose the emergency savings account with the highest interest. Comparison may help you find one. Read the terms of depositing and withdrawing money. Usually, you can tap the fund only in an extreme cash crisis. Otherwise, tapping frequently may affect the savings and the return on investment.
For example, if you save €2000/month towards an emergency fund, you can accumulate over €16000 if you save the same amount for 8 months straight. It is possible if your income is above €35000 and you can easily save at least €7000/month. However, you can even start with just €100 initially. The amount you save depends on your monthly income, expenses, and lifestyle.
- Identify modes of multiplying income
The higher the income, the more you can save. Therefore, it eliminates the need to depend on external financial facilities. Identify the part-time sources and passive ones to earn money. For example, you can earn as a freelance content writer and invest some money.
You get dividends on every investment in the form of bonds or shares. It could prove as a futuristic source of income. For example, here is what your part-time income may look like
| Income mode | Amount |
| Rental income | €8000/month |
| Part-time writer | €3000/month |
| Dividends | €2500/month |
| Total | €13500 |
So, this is a basic example of how your additional income may look. You can use the amount 13500 to meet your bill payments and other expenses. It eliminates your reliance on instant cash loans or credit cards drastically.
Bottom line
These are some smart ways to kick your borrowing habit today without worries. Identify the triggers that make you spend more and uselessly. Check how you can regulate these according to your income and liabilities. Set direct debits for important payments. Try to increase the income by seeking part-time and passive earning modes. It grants more flexibility on the savings front. It thus restricts you from borrowing money unnecessarily.
