Budgeting is an important aspect of life and has a lot to do with keeping expenses less than your total income. Those who are good at budgeting can come up with savings even if they have low incomes.
To maintain an effective budget you need to operate your life like like a business so that you spend less than your income every day, week, month and year. This is the key to successful budgeting.
The problem sets in when a person doesn’t make an efficient financial plan. When someones expenses exceed their earnings a person has no choice but to borrow money. When borrowing becomes a regular thing then this can put a person in serious financial difficulties.
The concept of debt becomes more complicated with the introduction of mortgage, interest rates and other charges. Interest makes the majority of debts double or triple. Its quite often that, the interest rate for a debt is higher than the original amount borrowed.
A person who wants to get credit can do so by getting a loan. These loans can be secured or unsecured. A secured loan means that the debtor borrowed some money and supported the loan by collateral or a security for the loan. The security usually comes in the form of a house.
Many creditors now require some form of security before granting a loan. When the debtor fails to pay the debt then the creditor can foreclose the persons home in order to pay of their debt.
Having an unsecured loan doesn’t mean that the debtor can just forget about their debts. When the debtor fails to pay his loans, the creditor can still chase him by filing a case in court.
They key fact is that you know what your income is then have the capacity to spend less than that figure. If you have a bad month, you have to be able to reduce your spending. The key is to adjust spending in any circumstance.
If you have a big increase in income it is still very possible to spend more than you make by being irresponsible. At that point you will be no better off than you were when you were making less money.
Being in debt is common nowadays, even third world countries owe money to more developed countries. Being in debt isn’t a problem; its when that debt becomes unmanageable, the problem starts.