Budgeting Basics and the Perils of Payday Loans

Being strapped for cash can come at a moments notice and take you by surprise. All it takes is one unexpected expense to throw your budget completely out of whack. Having an emergency fund for such occasions can save the day, but what if you don’t have one? 

In the U.S. some 80% of Americans have less than 3 months of savings for emergencies and nearly one in three have no emergency savings. In Canada, over 50% live paycheck to paycheck and nearly half of them have no savings for an emergency.

Not everyone has the same options available to them, and while some might be able to go to the bank, friends or family, many others don’t have the same support or credit ratings. This can require them to look at alternative financial options, like Canada payday loans or similar possibilities when short on cash.

Short term borrowing like payday loans provide options for those with few, giving them the opportunity to help themselves during a financial crisis. But it can come at a cost. Since these are high interest options, responsible borrowing and being able to make the payments can have everything to do with avoiding a debt trap or cycle.

Finding options for borrowing become increasingly difficult for those with poor or bad credit, and possibly even worse with no credit at all. Over a third have bad credit in America, and the numbers are comparable in Canada. 

Since financial emergencies are never planned, being prepared is essential so that you don’t fall behind on bills or rent. Unexpected costs can be a car accident, medical expenses, a trip to the vet or many other possibilities. 

Budgeting basics for such an occurrence involve putting aside a percentage of your income aside each payday. Paying yourself first to build an emergency fund ensures you continually contribute to the growth of such a fund, which will provide you options when you need them. It isn’t usually a case of if you will, but more likely when, since these types of situations are probably inevitable for most.

Determining what you might be able to afford to contribute to an emergency fund so that you can avoid payday loans in the future starts with looking at what you have to work with. Start by adding up fixed expenses like mortgage or rent, utilities, food, along with necessities like transportation costs to allow you to get to your job. Less essential expenses for things like eating out and entertainment come secondary.

Often it’s found that the amount available to work with might not add up to a whole lot, making it necessary to look at trimming some of the non-essentials, so you might be able to put more aside for an emergency fund. 

When working within your budget, it’s best to build in a buffer. If everything is down to the last cent and allows almost no room for error, an unexpected expense is certain to be a set back.

Building strong habits when it comes to managing your money is always in your best interest, and failing to plan is like planning to fail at some point. Being wise with the money you have to work with and setting some aside creates a cushion, and can soften the blow when a financial crisis comes up, especially with an emergency fund for such an occasion. 

Building your credit provides more options, and with the endless information available on how to do so, you can plan for a better future and reduce the financial stress payday loans can cause if you’re unable to repay them down the road. While they’re great in certain circumstances, and can even help maintain a credit rating when used responsibly, not everyone can manage their finances in this way. Developing frugal habits and money management skills just make it easier on you when finances become tight, allowing you to budget with a cushion and reduce the stress that times like these often come with.