Personal Loans always seem like the best solution when you are struggling financially or in need of extra cash. However, when you take one step back and assess the situation, Personal Loans aren’t all that great. Most personal loans are unsecured, and for this reason, they tend to have high-interest rates. You may qualify and also get secured loans. However, failure to pay back means that you could lose the collateral you had indicated in the agreement.
For the above reasons, you should avoid personal loans by all means possible. But how can you do that? Everyone is living in tough economic times, and you might have other debts to pay. Well, through prioritizing your financial needs, you can easily avoid personal loans. At the moment, it can be challenging to picture a life where you are financially stable. More importantly, a life where you don’t need to stress about money constantly. All these things are possible, and you can achieve them by prioritizing your financial needs.
How to Prioritize your Financial Needs to avoid personal Loans?
First, cover your basic living expenses
It always might seem obvious that you should cover your basic living expenses. However, failure to do so is the leading cause of why many people take out personal loans. It is quite easy for you to go into debt if you are unable to finance your basic needs. The basic human needs are very basic to survival, such as food, shelter, and clothing.
From your income, you need to set aside a certain amount that will directly go into your basic living expenses. Ensure that the amount allocated is sufficient so that you don’t go broke before you get your next payment. Additionally, knowing that your basic needs are covered gives you a sense of financial security. And, you will have no desire to get a personal loan.
Budget Your Money
Another excellent way for you to prioritize your financial needs is by budgeting your funds. Contrary to most people’s opinions, budgets aren’t all that harsh and terrible. Instead, budgeting ensures that you spend on needs that matter. We are not saying that planning a trip to Machu Picchu is wrong. But, if your finances can’t allow it, your budget will warn you against this type of spending.
A properly planned budget allows you to track your expenses. As a result, you will be able to track your expenses and know what to cut down regularly. And, once you know how to spend your money, you can come up with a financial plan. That is, you can know how much you can spend on rent, food, transportation, and utilities. This way, you can even set aside some money for investing, saving, and entertainment.
With a solid budget at hand, your financial situation won’t force you into taking a personal loan. It’s easy to get tempted to take long term loans when you don’t know where your money is going. This is why it is essential for you to budget your finances.
Build an Emergency Fund
One of the joys of life is its unpredictability aspect. Tomorrow isn’t promised. You could, unfortunately, lose your job, fall ill, or be in urgent need of extra cash. An emergency fund comes in handy in such a situation. Without it, you would be forced to take a personal loan to cover particular financial needs.
It’s easy for everyone to build an emergency fund. Once you have a budget in place, you should set aside something little to go to your emergency fund. After a while, your emergency fund will be sufficient to get you out of a financial hole should the unexpected happen.
Save for Retirement
Retirement might seem to be too far away, but days always fly so fast. It’s never too early for you to start saving. Retirement doesn’t mean it’s the end of your financial needs. They actually become more significant. Saving for retirement is similar to building an emergency fund. It secures your future financially. And should you be in urgent need, you won’t have to get a personal loan.
Pay Off Debt (If you have any)
Debts can really put a strain on your finances. Knowing that at month-end, you have to pay off a debt can make you feel less enthusiastic about life. After you have paid bills and built an emergency fund, the amount remaining should go into paying high-interest debts.
When it comes to debt repayment, you need to follow a strategic plan. That is, never put all your monthly earnings into paying a debt. Doing this could weigh heavily on you and force you to take personal loans to sustain yourself.
Live Below Your Means
In this era, it is very easy for us to spend on extra things that we don’t need. For instance, you could be seated behind your computer and run across an ad. The next minute, you are busy adding to your cart three new shirts or several tops.
Living below your means works hand in hand with budgeting. It ensures that you always have enough and eliminates the need for personal loans. Living above your standards, on the other hand, can put you in debt. This is because you are buying more than you can earn. Achieving financial stability is always a personal choice. And it’s only you who can help yourself attain balance. Make the right financial decisions and avoid impulse buying.
The Bottom Line – To avoid Personal Loans, you have to Prioritize your Financial needs accordingly
As human beings, we do pick up some needs along the way other than the basic ones. These include paying off a mortgage, student loans, car loans, saving for your child’s college education, and much more. If you want to avoid Personal Loans, these needs ought to be prioritized depending on importance, timeline, and end goal.
For instance, let’s say you want to start saving early for your child’s college fees. In this situation, you need to decide if it is an immediate concern compared to paying your home’s down payment. You need to evaluate your financial needs and meet them depending on the criteria mentioned above. This way, you will enjoy financial stability and won’t have to take personal loans. Also, you need to make a list of all your financial needs and their total cost. Then, decide which to tackle first. You can tackle them simultaneously as long as it doesn’t strain your finances.
By prioritizing your financial needs, you can easily avoid personal loans. By doing so, it sets you on the path of achieving financial stability and freedom.