One reason people get into financial trouble quickly is when they start using loans or credit cards for things they can’t afford, and then end up living beyond their means until they realize it’s time to pay up. The problem is they can’t pay up, because their income isn’t enough to cover the entirety of the debt. They soon have to start dealing with creditors and collection agencies.

Maybe you’re dealing with something like this right now and want to start changing your circumstances. But maybe you’re someone who has seen other people get into trouble over debt and you want to stay clear of that. It’s never too late or too early to start, and it all starts with identifying financial wants versus needs.

Separate Your Wants from Your Needs

It’s fairly simple to know what your wants and needs are, as needs are things you cannot do without, and wants are things you can live without. Needs typically fall into the categories of food, shelter, transportation, and communication. Wants are usually things like entertainment, decoration, or expensive brand items. It’s important to note that needs can become wants, such as if you need a home but instead of renting a small unattractive house or apartment for $600 a month, you decide you want that nice $1,450 a month penthouse. Or instead of buying very cheap thrift store clothes for next to nothing, you want that hot trendy apparel from the top designers. To avoid getting in debt or to get out of it, you need to stick to paying for your needs first and making sure you’re paying as little as possible until you can afford more expensive items.

When You Have to Borrow Money

There may be those times when you don’t have savings to cover your expenses and you find yourself needing to pay emergency bills. Cases like these may require you to take out a loan. Do not proceed without thinking through and planning out the situation. Whether you use a credit card or take out an installment loan online, you need to make sure that you know how you’re going to pay it off and do so in a short period of time. You could also ask friends or family for a small loan if you really need help. Or, if you own one or more valuable items, you may be able to borrow a few hundred dollars from a pawn shop.

Avoid Using Loans or Credit Unless Necessary

Sometimes the best way for using a loan responsibly is not to use one at all. Now that’s not to say you should buy a home without a mortgage because that probably won’t be possible, but it does mean you should be building savings and using them to pay for the things you need. Savings are built by budgeting, having the discipline to designate certain funds as savings via savings account, and only using them when you absolutely must. If you get in the habit of doing this, you can have money saved away for a rainy day such as when your car breaks down or your water pipes are leaking. If you want more income to build savings or to buy some luxury or entertainment items, maybe consider taking a second job, taking up a hobby that can make extra money for you.

Individuals can count on loans and credit to get ahead in life in situations where it would otherwise be insurmountably difficult. With that said, borrowing money and using credit requires responsibility. This, in turn, requires a practical understanding of the difference between wants and needs and avoiding the use of borrowed funds to pay for the former, while regulating their use for the latter.