Daily Archives: December 27, 2010

Living Beyond Your Means will lead to Bankruptcy


This week I have decided to dedicate my articles to areas that are the major causes of financial mismanagement across many countries, not only in America. Since, this is the last week of 2010, I hope that next year it will be different, but it can only be different if YOU do things differently. One of the areas that brought about the financial mess we are in, is the lifestyle we have adopted of owning everything we ”want,” which might not necessarily be what we ”need.” This has resulted in a lifestyle of living beyond our means which ultimately leads to financial bankruptcy. Charles Perez writes in the following article how disastrous the consequences of living beyond your means can be.

There are several general factors and specific individual circumstances that are the causes of bankruptcy for so many across the US. American consumers are trained to become spenders from an early age, teenagers can easily get credit cards and everyone in the country at one point or another has gotten offers for personal loans or pre-approved offers for credit. Not only that but all of this is more easily done now online, where a simple online application can get you a credit card within 10 working days.

The entire country, from the US government to minimum wage employees are debt ridden, and continuously spend more than they make. More of the average family’s income is going toward financial obligations, and more of this income is going towards credit card debts. Everyone borrows to own and to have now what they otherwise could not, and no one seriously considers the consequences of living beyond their means until filing bankruptcy is the only feasible solution to the burdens of debt.

Individual responsibility and discipline becomes very negotiable when it comes to “wants” and as well-trained consumers, the average spender is able to negotiate a “want” into a “need” rather easily. It’s these actions on the individual level that accumulate debt over long periods that are the main causes of bankruptcy for most single and married filers.

The average American family does not save enough

Federal surveys reveal that Americans are nearly $2 trillion dollars in debt, which equals to around $20 thousand dollars per household, not including mortgage debt. Because credit is so easy to attain even if the individual does not have a positive credit history, it allows people to remain in debt. Americans with credit cards spend more than they should, and do not put away enough of what they earn.

Why Savings should be a priority

No one is able to accurately predict what predicaments or life changing events one will experience in their lives. Having an emergency account where funds can be held for emergencies is as scarce as low mortgage rates. The average American family has a savings account with limited funds, this is not enough to help these families cope with job loss, sudden death in the family or emergency medical bills. Should these events become the case for people in these financial states, filing bankruptcy would be the only way to alleviate the pressures of incurred debts due to life changing events.

Signs that you may be living beyond your means:

  1. You have two mortgages on your home, at least one of them is an adjustable rate
  2. You borrow from you home’s equity to pay for luxuries such as cars and vacations or to pay other debts
  3. You use a credit card to pay the minimum payment on another credit card account
  4. You take cash advances from you equity account or credit card to pay for necessities
  5. You apply for and get another credit card when you max out the ones you have
  6. You get nervous or have an uneasy feeling when bills arrive at your mailbox
  7. You feel the need to keep up with your neighbors (the grass is greener syndrome), and impress friends and family

All of the above are some of the major causes of bankruptcy and they slowly creep up on the individual, all of it is often overlooked and put aside while pretending that it will all just work itself out eventually. The eventual outcome from these habits is normally an unbearable amount of debt, and filing bankruptcy may seem like the end of the world to the individual, but it is one of the best benefits extended to all American citizens by the federal government. It is a fresh financial start. Even though new bankruptcy laws have made it a little more difficult for individuals to discharge their debts filing bankruptcy chapter 7 or rearranging their debts with bankruptcy chapter 13, people are still finding relief in bankruptcy in large numbers.

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