If you live in the United States and spend more than you make, you're part of the norm. More than 40 percent of Americans spend more than they make, leading to a debt-centered financial life [source: Khan]. Spending more than what you make sells your income to the future. Without a plan to catch up to the cost of the money you've already spent, your debt will accumulate more debt through interest.
Living month-to-month also creates a situation where you have nothing to fall back on if money runs out. And unfortunately, this over-spending lifestyle perpetuates the myth that we'll catch up on our debt in the future, keeping us in exactly the same situation year after year.
But spending less than your salary has never been the model that most people grow up with in the modern world, even though saving up and paying cash keeps us better positioned for the future. Your monthly income should be dedicated to future planning and present comforts, and you should pay money into your savings to reach goals and achieve whatever amount of financial security you desire.
However, even the most disciplined and creditor-savvy consumers can fall into debt in the blink of an eye. While over-spending isn't the issue for everyone, personal emergencies touch households daily. Financial advisors generally recommend a savings of at least six months or more to cover costs for emergencies, but with an average of less than 6 percent of U.S. incomes going into savings, most emergencies have to be financed [source: U.S. Dept. of Commerce].
While your personal debt belongs to you, get to know your impersonal financial partners, next.