I ran across an article at Kiplinger.com that really reflects everything I’ve ever learned about being in debt and so I thought it would be fun to talk about. Like the author of the Kiplinger article, I don’t have a lot of money, and unless I get that book deal or sell a script to Hollywood, I probably won’t have a lot of money. Most of the time I manage my finances to the point of being comfortable, but I don’t have large excesses by any means.

The point is, being put in financial hardship situations can teach you a lot about finances, and you as a person. You learn to make do with what you have and get by on less. It sucks, but you get through it and you move on, hopefully with lessons you can impart to others.

What I’ve Learned

1.) You have to figure out your priorities.

This truly goes beyond just the budget. You need a budget to make sense of your financial ups and downs, but having your priorities in order will help the process go a lot smoother. Some decisions are easier that others. For instance, most of us would rather pay our rent then buy a big screen TV. But, other decisions are a little more difficult to make – do you fix the air conditioner or replace the water heater?

Having a clear sense of what’s most important to you financially is the best way to answer these questions. More importantly, knowing the difference between a ‘want’ and a ‘need’ can go a long way towards helping you realize your financial goals. You may want matching furniture in your home, but when you’re struggling just to pay the light bill, does it really matter? If you answered yes to that question then perhaps your vanity needs to take a back seat to your finances. New, matching furniture shouldn’t be a priority over paying your electric bill, and if it is you’ve got a Joneses complex that’s costing you money and resources!

2.) Debt is a vampire.

That’s not my phrase, but it definitely adds a vivid image to your growing debt, doesn’t it?

Maxed out credit cards that you’re just paying the minimum on will eat your money, but the balances will never really go down. You’ll be paying on it forever at that rate. But, you also have to be careful of the cycle where you’re paying more than the minimums every month, but then have to rely on the cards for your day-to-day expenses. If you’re just running the balance up, you’re doing the same thing as paying the minimum, which is not much at all in the way of reducing your debt. Left to it’s own devices, debt will suck you dry.

3.) Emergency fund, emergency fund, emergency fund.

Argue if you want, but everyone should have an emergency fund. Relying strictly on credit cards is a dangerous business and one that could come back to bite you in the butt. At a bare minimum, everyone should strive for $1000 tucked away in a savings account. Realistically, you should have 3-6 months worth saved up in that ‘rainy day’ fund. If you’re living paycheck to paycheck and relying on credit cards for your emergencies, your financial goals can be derailed rather quickly. If that’s the lifestyle you want, there’s not much I can say to that, but I seriously doubt most of us want the feeling of financial insecurity hanging over our heads.

4.) Set your goals and ignore peer pressure.

It’s important to have specific goals for your finances or you won’t have anything to measure your success by. By nature, humans want to know their hard work is going to come to fruition, otherwise there’s no point. By having a solid set of goals in mind, you also give your brain leave to be creative in finding solutions that will get you there. You may say your goal is to save, but why? Clarify that to a solid, attainable goal and you will find reaching your goal is easier, with a lot less floundering going on.

I wrote an article some time back about how friends can keep us in debt. Sometimes sticking to our budgets is hard to do when friends on a different payscale are constantly nagging us to go out and spend money. Don’t get me wrong, I know it’s hard to watch everyone else around you living the good life and enjoying the finer things. But the reality is, you don’t know their situation like you know your own. They may be putting on a big show for all you know. The only thing that matters is you accomplishing your goal…not to the detriment of your relationships with people, but if they truly care about you, then once you’ve put your foot down, they won’t complain (much).

5.) Rome wasn’t built in a day.

And you won’t have everything you want overnight, either. Small sacrifices now can lead to big rewards in the end. Giving up a latte three times a week, packing your lunch instead of eating out, turning the AC up a degree or two, these small things can add up to big savings. Of course, this goes back to knowing your goals. Are you saving for a house, a vacation, a wedding? Knowing the reason for your sacrifices will make them easier to bear.

6.) Money isn’t everything.

At the end of the day, the amount of money in your bank account shouldn’t be the most important thing in your life. Money comes and goes, but friends and family bonds are lasting and meant to be cherished. Working on good relationships is often more rewarding and fulfilling than working on maxing your insurance with the bank. I’ve said it before and I’ll say it again, having money is great, having loved ones there when I die is much better.

I know many of you here have worked your way out of debt and I’m sure there are many pearls of wisdom out there to be shared. What are one or two things you’ve learned over the years after struggling with debt?

Related posts:

1. Lessons learned from the documentary Maxed Out
2. The Last Lecture – Lessons from a Great Man
3. Hot Checks: Lesson Learned…The Hard Way
4. A Little Something Learned About Apartment Living
5. 4 Recession Lessons We Shouldn’t Forget