Debt – balancing the big picture with the little picture

I touched on this topic yesterday in my article ‘Renting is better than buying and here’s why’. In the article I made the point that the vast majority of people have their minds so focused on their own financial problems and worries that they don’t have time to consider what is going on around them in the economy and the wider world.

I called the economy ‘big picture’ and the personal and financial problems that people have ‘Little picture’. Just to note that I am not having a go by calling people’s problems ‘little’ – far from it. I am simple making the comparison between the ‘big’ problems that affect all of us (in this case the economy) and the different problems that people have that are unique to their situation.

Balancing Act

If you have a debt problem it should have 100% of your focus. You should focus on it until the debt is no longer a problem. That said there is a problem with focusing 100% on your debt and that problem is what is happening in the wider economy at any given time.

Is the economy on the up? Is the economy on the way down? Where are interest rates heading. How much does gas cost? What is the unemployment rate? What is the rate of inflation?

All these things are very important when it comes to repaying your debt. For example, if you decide to go for a better paying job. If the economy is on the way down there may not be any better jobs out there for you to go for. Another example of looking at factors in the wider economy would be something like the price of gas and the impact it has on the type of car that you buy.

The danger is that people in debt develop financial coping strategies without taking into consideration the various economic factors that could have a direct impact on them. In a lot of cases people determine their budgets based on their current status quo and do not factor in something like getting laid off. This is where an emergency fund is crucial and it is one great way to counter the effects of a declining economy.

On the flip side of this argument is that you can become too wrapped up in the state of the economy. You might never seek out a better paying job just because the economy is not in great shape. Some people are doom merchants and any hiccup in the economy sends them running for cover. This is no way to live either.

Start learning

To maintain a healthy balance between the focus you put on repaying your debts and the focus you put on the state economy you need to learn how events and factors in the economy affects you. No you don’t need to do a PHD in finance. By simply researching online and reading blogs about the economy you will pick up the necessary information about how events will affect you.

A lot of people don’t pay much attention to the price of a barrel of oil and yet they wonder why the price of gas has become so expensive. Had they known about events in the economy and the wider world they may have been in a position to develop a strategy along the lines of car pooling or taking public transport or even buying a more fuel efficient car.

I find learning about the economy and world events to be fascinating. Things that happen thousands of miles away can have a direct impact on your pocket. It pays to know about these things. If you do you research about economic events it is possible to put yourself in a position where you are largely insulated from them.

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