Personal financial management is not just about your retirement or your checking account. It is about all aspects of financial management including debt. Being in debt can be scary and overwhelming. However, not all debt is bad. In fact, the responsible use of financial debt can be very beneficial when applied and used properly. The key word is responsible.
Let’s begin our discussion with a few statistics:
- 48% of military personnel report having financial difficulty
- Veterans are twice as likely to carry credit card debt from month-to-month (58%) than civilians (34%)
- 30% of veterans have gone over a credit limit, bounced a check or been sent to a collection agency
- Less than 20% of military veterans stockpile a six-month savings cushion
- 33% of active duty personnel have trouble keeping with monthly expenses
- 25% of active duty personnel have more than $10,000 in credit card debt
- 10% of active duty personnel have more than $25,000 in credit card debt
How do individuals go from a steady, dependable paycheck to no money at all?
The mistakes that lead to a poor financial state are produced through a vicious cycle or repeated, irresponsible compounding decisions. The number one reason finances spiral out of control is unmanageable debt, which leads to most personal financial. Military members accrue debt in a number of ways to include overuse of credit cards, uncontrolled spending habits, or failure to save for emergencies. The vicious spiral of debt often begins with:
- A hasty or poorly thought-out home purchase. When monthly mortgage payments are greater than the family budget can support, other expenses such as adequate insurance and repairs are supported with credit cards or ignored..
- Spending a bonus on “wants” instead of paying off debt or depositing it into a savings account for future “needs” or emergency home repairs.
- Financing cars with large monthly payments for a fewer number of years but which negatively impact monthly income and cause poor choices related to insurance and maintenance and necessary expenditures to be made using credit cards and loans.
Each one of these scenarios have the potential to cause your personal finances to snowball through irresponsible use of credit cards and other methods of personal loans
Perhaps I’ve painted a bleak and scary financial picture, but these scenarios can all be avoided. In fact, through responsible use of debt, anyone can create a better personal financial situation. The key to responsible borrowing is to understand your monthly income and expenditures and creating, and sticking to, a personal budget. Once you have an understanding of the amount of money coming into your household and the obligations and routine spending you can begin to turn around the vicious cycle of debt.
Another key to responsible debt management is becoming an informed and patient consumer. By researching prior to making your purchases, having the patience to wait for a sale, a deal, or a special price, you can save money and reduce debt. Additionally, being an informed consumer means you will have a better understanding of the product you are buying, its reliability, warranties, useful life, and limits. In other words, you will not be spending money or incurring debt to replacing a bad or lack luster item.
Debt can destroy your personal finances when not used in a responsible manner. Time and time again statistics show that debt is the number one cause of financial disaster. By being an informed, responsible, and patient consumer you can avoid the vicious cycle of debt and have peace of mind about your family’s finances.
Jonathon Rowles Captain, USMC (Ret.)
Disclaimer: (have to do it) – This blog should not be considered financial, investment, legal or tax advice. Consult your licensed financial professional, tax advisor or legal counsel. This blog is for educational purposes only.