In today’s 2 Minute Q&A we’re going over how to build a healthy relationship with debt on purpose. I know that this isn’t an easy topic for some, especially if you’re in debt or even if you’re debt-free. But as you dig deeper into the reasons why you have debt, you start realizing that it’s just a tool. Debt isn’t the enemy or the hero, you are. Depending on how you use it and feel about it, will decide what kind of relationship you want to have with debt.
Emergency Funds are Helpful
The older you get the more responsibilities and experiences you’ll have. One thing I’ve learned from my life experiences is that life will test you. Not having money set aside for emergencies isn’t helpful. I still remember when I had to deal with an emergency and needed to pull money from my emergency fund. To be honest, it was so much more difficult than I could have ever imagined, but I was glad that I had it.
Listen to Your Gut
I had to remind myself that my emergency fund was for just that, for emergencies. There is no reason to feel bad about using your emergency fund. But deep down, I know the gut feeling of uncertainty when deciding to pull your emergency savings. My motto is to listen to your gut, even if it’s telling you to not pull all of your savings. Once you have one emergency, you get a little nervous if you have to deal with another emergency. We all know the saying “when it rains it pours”. This is why it’s okay if you’re getting a gut feeling to not pull all of your savings. Instead, allow yourself to keep $1000 to 1 month of your emergency fund in your savings for your sanity.
Consider your Credit Score
There are multiple ways to solve a problem. Some solutions might not be the best solution depending on your situation. If you have a large expense like a roof repair, using a credit card might not be the best option. Putting such a large expense on your credit card can put you over the 30% utilization rate of your available credit. Which could lower your credit score, even if you can pay it all off at the end of the month.
Weigh your Financial Options
This is where weighing your financial options comes into play. Different financial tools have different purposes. Your credit cards can be a good tool for routinely monthly expenses or online purchases. Emergency fund savings are good not just if you lose your job. But for other types of emergencies, like if you get hospitalized or have a sudden death in the family. Getting a loan to buy a house, go to school, or get a car can be purposeful during your journey. This is why being clear about your financial goals and how you utilize debt as a tool can be too helpful.
Is Debt a Good or Bad Decision
One way I rationalize building a healthy relationship with debt is by being clear on why I need it and for what. A lot of people overly lean on if society considers it to be good debt or bad debt. But that’s only based on a financial point of view, not the personal experience you’re dealing with. I like to ask myself if I consider the debt to be a good or a bad decision for me. Once I pulled back and focused on my point of view, I was able to look at debt in a more purposeful way. By making my debt purposeful and something that I planned for not just financially, but also mentally.
Closing Thoughts From our Sponsor
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