left with $200 a month, But what happens if you are faced with an unforeseen circumstance like needing a replacement part for your vehicle or your roof begins to leak? If you don’t have sufficient funds in your savings, you may have to borrow money to pay these essential debts and suddenly find all of your income has gone towards paying loans.
Borrowing responsibly is essential for you and your family, because if you have no money left over each month for enjoyment, you will be living from one pay-cheque to the next, just to clear your debts and pay your monthly expenses.
Most banks and lending institutions have fixed criteria of how much you should be spending on loans as a maximum of your income. The figure varies between 30% and 45% of your earnings after tax and insurance. To borrow more money than this could be said to be irresponsible because you will have no room for maneuver should an unexpected financial problem arise.
When your income is steady, you can establish a maximum amount you are prepared to pay towards loans and other expenses so that you can guarantee that you have some money left over for entertainment and some redirected to your savings account for future planning.
It is critical to understand the challenges arising from overextending your finances. By prudently and responsibly managing your finances, you will find ways to live within your income and enjoy your life, because you will have budgeted and planned for circumstances that you may be faced, expectedly or not.