Solvency is summarized by the following simple sentence: You have the means to pay, in due course, your bills and obligations.
Maintaining solvency requires a certain discipline and, at all times, control of your emotions as a consumer, which are too often solicited.
Here are some tips and tricks that will help you to maintain your financial health.
- The use of a single credit card
Use only one credit card and make sure you always pay the balance due before the end of the grace period (usually 21 days). When the debt accumulates, you should borrow (either through a personal loan or a line of credit) from the bank at a rate that is lower than your card to pay out the balance. In the event that it becomes too difficult for you to pay the balance on your credit card, it is better to store it temporarily because the fees associated with this type of credit are excessive.
- Become a co-signer or guarantor ? Never
Never co-sign for someone else because this is equivalent to providing a guarantee to creditors that you will assume the debt of that person if he or she fails to do so. This constitutes a significant risk for you and the consequences could be disastrous, especially if you cannot afford to repay the amounts due. Since you are potentially liable for the loan you've endorsed or co-signed, you will be penalized when you try to take out subsequent loans. Let the banks take the risk for you; they can afford it!
- A long term bank loan ... but only for a durable good
When you need to borrow over the long-term (e.g.: furniture, car, house), make sure that the balance due can be paid down at any time by liquidating the asset. In so doing, you can divest yourself of this property and free yourself from the associated payments if your income decreases or if interest rates increase
- Avoid tax liabilities
Delaying paying your taxes can cost you dearly. In fact, when you delay filing your income tax report, it becomes difficult to catch up. Interest is added to penalties, which are then added to the amount of tax that you owe. Your tax debt could thus become the most expensive of all of your obligations. Please avoid such tax debts. As for tax evasion, it is certainly not a good idea either. Sooner or later the tax authorities will find you and recover the money owed with interest and, of course, severe penalties.
- Secure investments
IInvest your money in protected investments and avoid high risk ones. It is always better to invest in something that you can understand. Avoid seeking higher returns because they are always accompanied by an equivalent risk. Paris was not built in a day!
These days, it is essential to have an emergency fund to deal with unexpected events. No one is safe from a temporary job loss, an illness, or a major car repair. As a general rule, a reasonable amount is equivalent to 3 months of your net income.