Solving Debt Problems with a Budget and Financial Planning

One thing we are not taught in school is budgeting and wise financial stewardship. Instead we are taught to be consumers, and that "things"  make us happy (such as $200 shoes and $150 jackets). This mentality has resulted in families and nations falling deeper and deeper into debt.
But budgeting is an important aspect of living and a person who knows how to budget will go a long way in this commercialized society.  Budgeting has a lot to do with keeping the expenses less than the total income of the household. Those who are very good at budgeting can even come up with savings even if they have meager incomes.

An example of a family surviving on a meager income is the woman who wrote a series of books a few years ago how to live frugally. Her husband was in the Navy and they had a large family. Yet they were able to pay off their house, put money into savings, and do very well financially because they knew how to budget and spend wisely. They proved that it's not your income that matters as much as how wise you spend the money you make.

Unfortunately, that family is in the minority. Most people do not know how to spend wisely and they do not ever have a budget. The problem sets in when a person fails to make an efficient financial plan and his expenses exceeds his earnings.

When this happens, a person has no choice but to borrow money to make up for his financial deficiencies.  Borrowing once or twice because of a mismanaged financial plan is normal but when borrowing becomes a regular thing then that can put a person in serious debt problems.

A person who borrows money from another is said to be in debt. The debts of a person can be minimal or it can reach up to millions depending on the credit limits of such person. Sometimes a person who has assets but isn't liquid can use these assets to get cash.  Under this term, the person can be indebted for an amount less or more than his assets.

There are laws which provide that a person can never be forced to render services as payment for his debts.  This is already called undue servitude which is prohibited by the laws of some countries.  However, there are situations when the person who is in debt opts to settle his obligation by rendering his services.

This can happen if a person is so talented in his craft like painting and he opts to pay for his debts by creating a painting of the creditor or the assignee of the creditor.  Sometimes, a person can pay his debts gradually or on an installment basis.

When a person dies, the law has provided for a hierarchy of preferences in the payment of such debts.  Of course, payment of taxes to the government will always come first.  The second priority for debt payments includes funeral expenses of the deceased and the payment for the wages of people.

In the next post I'll talk more about how to get out of debt by budgeting and financial planning. Many people have been deep in debt and succeeded in getting out of debt once they learned how to budget. You can too.