This week’s Blog Carnivals

Oct 172008

Hi all,

This week I participated in a number of blog carnivals. I recommend you take a look at these carnivals as they bring together some of the best personal finance minds on the web all in one place. Along with that they provide a wealth of ideas on all topics related to debt management, savings, frugality and money in general.

Here is the list

Rich Life carnival #14 hosted at Yourfinishrichplan.com

Carnival of debt reduction #161 – Fall Colors Edition hosted at Gatherlittlebylittle.com

Carnival of Credit Report Stories October 13 – hosted at La-va.com

Carnival of Money Stories #80 – hosted at outofdebtagain.com

Festival of Frugality #146 – hosted at Aridni.com

34th Money Hacks Carnival – Fall into Savings hosted at whereyouarenow.com

6th Bankruptcy and Debt Carnival hosted at bankruptcyaccess.com

I hope you enjoy.

Money – Easy come Easy go?

Oct 152008

I was talking with my brother last night about how some members of our family are spendthrifts and how we fritter away money like it is going out of fashion.

I made the comment that the family attitude towards money seemed to be ‘Easy Come Easy Go’. My brother agreed however while I was focusing on the ‘Easy Go’ part of the statement he was focusing on the ‘Easy Come’ part. He made the excellent point that while most members of the family are spendthrifts none of them are in really serious financial difficulty.

This got me thinking.

I was focusing on the ‘Easy Go’ part of the statement and thinking about all the money I have spent over the years and all the expenses and debt repayments I now have. He was focused on the ‘Easy come’ part of the statement and when I asked him to explain and he told me that he was thinking about how money seems to easily come to the members of the family who spend a lot. He used a couple of examples where money seemed to appear out of nowhere like someone getting a big unexpected bonus at work.

He was right and the more I thought about it the more I began to realize that in general the people I know who have had difficulties with money are the very people who are uptight about money. They may read about the credit crisis and get stressed, they have effectively shut down their spending and become stressed about the flow of money into their lives.

On the other hand the people I know that aren’t having difficulties with money but yet still seem to be spending are those people who have a very relaxed attitude towards money.

I’m thinking out loud here but I reckon the reason why this seems to be the case is that people who have relaxed attitude towards money seem to take more risks and follow more potentially profitable opportunities. While people who are stressed about money seem to take fewer risks and try to maintain their financial status quo.

Take the example of a new job opportunity that pays well. The person who is relaxed about money would more than likely be prepared to take the risk and go for the job. The person who is uptight about money might not even consider applying for the new role for fear that it might upset their current employer should they ever find out.

This is a very simple example but I think it illustrates the difference between those who are stressed about money and those who are relaxed about money nicely.

The difference

The key difference seems to be the attitude to risk. The person who is relaxed about money knows that there are always plenty of money making opportunities and jobs out there for the person who is willing to work hard and take a risk. The person who is stressed about money is too focused on losing what they have and the current financial problems that they face that they do not even see the opportunities. As a result they stay stuck in a kind of financial limbo that only moves at the rate of inflation.

But I’ve got bills to pay

Me too and while I kind of figured that this was the way that money seem to work it wasn’t until I sat down and thought about it that I realized that attitude has a huge part to play in any financial situation.

Say you’re in debt like me and you’ve had a bad day at work and you arrive home to find a stack of bills. The misery just keeps piling on and no matter how sunny your disposition is there is a good chance that this will get to you. Fair enough. But you have a choice as to how you can respond to the situation. You can kick and scream at the unfairness of it all or you can simple say ‘I don’t feel up to dealing with this right now so I’m taking a time out and will deal with when I feel better’.

The truth is that when you are in debt the world tends to beat on you a lot more than if you weren’t in debt. The same problems that seemed easily dealt with before can seem insurmountable when you are in debt. That is the nature of the beast unfortunately and at the risk of sounding like a broken record the only true think that you have control over is your attitude.

What can I do?

Changing your attitude towards money takes time, patience and a lot of effort. I can only relay what I have read about it because in theory if my attitude towards money was brilliant then I would not be having problems with debt. So perhaps I’m not the best person to be asking. That said I can tell you from experience of what constitutes a bad attitude towards money if that will help?

So the idea here is to notice if you have similar thoughts. If you do then it might be the case that you need to look at your attitude towards money.

Ok so here goes.

You see someone with a fancy flash car and you think – they must be criminals.

You work hard yet get passed over for promotion and a colleague gets it instead. You think – they must be sleeping with the boss.

You receive a pile of bills but you ‘forget’ to pay them thinking that you can get away with it for another month.

You get angry at the credit card companies for charging you extortionate rates yet you knew exactly what the rates were when you signed up.

You ‘forget’ family and friends birthdays.

You live for today and adopt the ‘I could be dead tomorrow’ attitude. But wake up in two days time alive and well.

You don’t know how to get your bank balance.

You don’t know how much you owe on your credit cards and loans.

You expect some ‘manna from heaven’ i.e. some good fortune to come along and solve all your money problems in one go.

You try to match your neighbor in the lawnmower stakes. Mine is bigger than yours.

You try get rich quick schemes in the hope of making money but in the end you lose all your money.

This list is by no means complete. The point I am trying to make is that each of the thoughts and actions outlined above point to a case of bad financial attitude. If you have had some of these thoughts in the past don’t worry. Attitude is something that can be changed. So why not change yours?

For more of my musings on Debt management and Personal Finance please subscribe to my RSS feed. Alternatively if you would like a free copy of my Debt management ebook “Understanding and getting out of debt” please sign up for my free newsletter.

How mood affects spending habits

Oct 032008

I’ve always wondered at what time/on what day I spent the most money. What caused me to reach into my wallet and splash the cash for items I could do without?

As part of my plan to get my finances under control I started to write down and record exactly how much money I spent and on what I spent it on. I didn’t make any attempt to curb my spending as I wanted to get a true understanding of where all my money was disappearing.

So each day I would write down exactly what I spent, where I spent it and who I was with when I spent it.

As I mentioned in a previous article this was an eye opening exercise. I was provided with a wealth of very useful information. To begin with I was spending way too much in local convenience stores close to my home. I then switched to larger discount stores on the edge of town for my shopping. I have saved a small fortune since.

One thing that stood out like a sore thumb to me was that I seemed to spend more on a Friday and a Saturday than on any other day of the week. Also I noticed that I seemed to spend a lot more on the Friday and Saturday after I got paid.

This got me thinking.

Why the heck was I spending more on these days? Ok you might think that I was doing more ‘stuff’ on these days, for example going out on a Friday night. This was true to a certain extent – I was spending more as a result of different activities. However even when I stripped out these different activities I was still spending a lot more than I would on an average day.

Mood enhancers = more shopping

A light bulb went off in my head eventually when I looked at what is different about these two days – Friday and Saturday – from the other days in the week.

As a member of a cubicle farm (i.e. an under appreciated office worker) I put extra significance on these two days. Simply put these are my favorite days of the week. I love Fridays because I am in anticipation of the weekend and the freedom to come and I love Saturdays because I am free and I still have half my weekend left to enjoy.

Since I love these days so much I am much happier on these days and my mood soars.

Now conventional wisdom has it that people tend to spend more when they are down and in a bad mood. The term ‘retail therapy’ is one that I would associate with someone who is in a bad mood and determined to shop their way out of it. But surprizingly I somehow managed to operate in reverse.

The happier I am the more I spend

The changes were only subtle – for example on a Friday I would buy a large coffee instead of a medium. I would be more inclined to eat out for lunch instead of either using the staff canteen or brown bagging my lunch. On Saturdays I would have both the means and motivation to spend more. I might eat breakfast in a nice café and lounge around reading the newspapers drinking a nice expensive coffee.

The thing about mood and spending money for me was that I always felt more confident in my ability to manage my money and earn more when I was in a good mood. I always thought that I was ‘allowed’ to spend more on Fridays and Saturdays since I had put in a week’s work and I deserved a treat.

Oh how we are the masters of our own downfall.

Time for a change

I realized that my logic was flawed and that I needed to correct this behavior if I was ever to get on top of my debt.

Once I made the connection between my good mood and my increased spending I tried to increase my alertness on the days in question. On both Fridays and Saturdays I would try to be extra vigilant for overspending.

If I’m honest I found it tough. The fact that my nice comforting weekend spending routines were stopped did actually dampen my mood.

Was it too extreme?

I personally don’t think it was. Sure I didn’t enjoy my weekends as much since I wasn’t spending anywhere near the amount of money that I had been. But on the flip side the stress of worrying about my finances was in time greatly reduced. I began to feel a little better on a Monday morning and not feel like I was trapped in a job I didn’t like just to pay my debt.

Sure some of you will probably argue that I did deserve a little treat as it was the weekend and I would agree. However I was spending way too much on these ‘treats’. I did continue to treat myself at the weekend but I did in ways that didn’t cost much.

How does your mood affect your spending habits?

I’m interested in getting feedback from readers about how their mood affects their spending habits. Does it have any affect on your spending? Do you spend more when you are in a bad mood or like me when you are in a good mood? How do you manage your moods and in turn control your finances?

For more of my musings on Debt management and Personal Finance please subscribe to my RSS feed. Alternatively if you would like a free copy of my Debt management ebook “Understanding and getting out of debt” please sign up for my free newsletter.

Cars – in the end they all do the same thing - get you from A to B

Sep 292008

The car that you drive says something about who you are.

We use material things to project an image of ourselves out into the world. If we want to portray a successful image we might buy a nice big shiny car. These type of cars generally cost us a lot of money but hey what the heck we’re successful aren’t we? We can take the finance offer and pay the car back in nice manageable monthly instalments.

So what does your car say about you?

What image are you trying to portray?

Who are you trying to impress?

Unfortunately sometimes we can get this wrong. My advice?

Tone down your Life

Or more specifically tone down your car.

Before we go on I want to make clear that I’m not trying to beat up on anyone here. I’m not trying to belittle hopes, dreams or aspirations of any readers. What I am trying to do is to help you build a sound financial foundation upon which you can achieve them.

Why burden yourself with stuff that you don’t necessarily need? I mean a car is a car is a car. The ultimate use of any car is to get you from A to B. Ok I understand that there is a whole image thing tied up with the car but are you that self conscious and lacking in self confidence that you feel the need to compensate for it by driving a big pointless car?

To me the coolest person on the block is the person who can jump into a beat up car and have the confidence to drive it around all the while not caring about what people think about them.

rusted-car.jpg

Easy to do?

No way!

I’m as self conscious as the next person and while my car might be six years old I make sure that it is always looking nice and polished. I made the mistake in the past of thinking that a car could somehow improve my social standing.

When I first started working I made the mistake of buying a nice new car. Girls love guys with nice cars right? Well to be honest I couldn’t really afford the car and as a result I never felt 100% comfortable driving it. Since I didn’t feel comfortable driving the car it always seemed that I was driving someone else’s car. Which is true – I was driving someone else’s car. I was driving the finance company’s car. Not a nice feeling.

The problem I had was that I hated not having any money at the end of the month more than I liked the car. Sure it was a really nice car but it was also a car that I couldn’t afford.

I had the car for eighteen months before I decided to get rid of it. I lost money on the transaction but I wasn’t too worried as I simply wanted out of the expensive repayments. I paid off the loan and I bought a much smaller and cheaper car. Not the coolest car by a long shot but cheap to run and it got me from A to B.

Sure I got some jokes in my direction about downsizing but to be honest they didn’t hurt half as much as the monthly repayments were hurting.

Mind over matter

If you don’t mind it don’t matter. So if you are comfortable with the car that you are driving then it shouldn’t matter what other people say. No I know it’s not easy. I struggled with the thought of changing my nice car for a less nice car for a long time. But I got there in the end. I resigned myself to the fact that if I ever wanted to have some sort of financial future that didn’t involved a debt overload then I needed to start cutting. My car was the biggest and most obvious choice to start with.

How about you?

Could you downsize your car? Could you put up with the jokes from so called friends and colleagues? Better still could you get rid of your car completely?

For more of my musings on Debt management and Personal Finance please subscribe to my RSS feed. Alternatively if you would like a free copy of my Debt management ebook “Understanding and getting out of debt” please sign up for my free newsletter.

Doing an intervention for someone who is addicted to debt

Sep 222008

At what point do you intervene when you can see that someone that you care about is heading for serious financial problems?

Do you sit and wait until they come to you?

Do you offer advice and hope that they will heed it?

Do you organize an intervention?

In my mind an intervention was always done for some form of serious addiction – drink or drugs. I now see that I have been too narrow in my thinking. An intervention for someone who is addicted to debt can be just as important as if that person was on drugs.

I’ve never ‘done an intervention’. Sure friends and family have come to me for help in the past and I outlined my experience of one such time in my article ‘The pain of debt’. But I have never actually taken the initiative and gone and intervened where I have seen there was a problem.

Why not?

Well to be honest the saying ‘people in glass houses shouldn’t throw stones’ always comes to mind. It would be very easy for the person that I am trying to help to turn around and say to me that I wasn’t so hot when it came to my own financial situation. But that is the whole point – the fact that I haven’t been so ‘hot’ in the past means that I have lots of painful experience that I could share to help them avoid making the same mistakes.

I suppose it is the fear of rejection that prevents me from doing it. When I blog there is a distance between me and the reader – it is not face to face and as much as I respect my readers the closeness that I have with family and friends would make it all the more difficult to give advice.

Then at what point?

The question I have to ask myself is what would it take for me to intervene to prevent someone from going over the edge financially?

Honestly I don’t know. I could say that if I saw a friend or family member seriously upset about their situation but too proud to ask for help then I would intervene but I would always let them try to solve their problems themselves. If I felt that they were truly struggling then I would intervene.

But I didn’t know.

In a lot of cases people keep their financial problems to themselves and maintain a façade of normality. A lot of people don’t want to be seen as weak or unable to cope so they internalize their problems and hide them away. For example any bills that come in the door go straight into the bin or in more dire circumstances they may take on even more debt to maintain the show.

In these cases it is very hard to know if someone has a problem. In a lot of cases like this it is only when the sheriffs are calling is it acknowledged that there is a problem.

In situations like these there is not much you can do. I suppose the only real thing you can do is be on the look out for warning signs. If you suspect a friend or family member is having financial difficulties then I suggest that you let them know in an indirect way that you are there to help them should they ever need it.

Have you ever ‘done an intervention’?

I would like to know if any of the readers have ever had to confront a friend or family member about their spending. I am curious to know how they tackled it as I am having difficulties trying to imagine how to do it properly. Please leave a comment in the comments box if you have ever had to confront someone about their spending.

For more of my musings on Debt management and Personal Finance please subscribe to my RSS feed. Alternatively if you would like a free copy of my Debt management ebook “Understanding and getting out of debt” please sign up for my free newsletter.

Are you lottery class?

Sep 152008

Apparently there is a new way of allocating social class. The new class concept ties into the articles that I wrote about debt and lottery tickets and the windfall mentality that some people in debt have. This new social class breakdown is simply split into two categories. The investor class and the lottery class.

Barbara Dafoe Whitehead has written a very interesting article on the subject entitled ‘A Nation in debt’. In this article Whitehead breaks down the distinction between the classes and how this new social class system came about. Whitehead also writes about the death of thrift. I highly recommend reading the article. It is quite long but well worth the effort.

In the meantime here is a summary of what she says about the two classes.

The Investor class

“The investor class, with ample access to institutions that foster wealth-building discipline, is served by a bevy of insurance agents, tax lawyers, stockbrokers, tax accountants, deferred compensation experts and investment bankers. They are likely to work in organizations with 401(k) plans, profit-sharing, Keogh plans, deferred income compensation and retirement savings programs.”

The lottery class

“The lottery class, on the other hand, works in jobs that offer few pro-thrift benefits. As of 2004, seventy million of America’s 153 million wage earners worked for employers without a retirement plan. Rather than being courted by investment firms, they are targets of modern-day, made-to-look-respectable loan sharks. Tens of millions of working Americans who might join the class of savers and investors under more favorable circumstances are being recruited into a burgeoning population of debtors and bettors.”

To me it smacks of ‘the haves’ and ‘the have nots’. That could be an oversimplification of the situation but at first glance that’s the way it appears. The question you have to ask yourself is what class do you fit into?

Why is it important to know which class you are?

Well I know which class I would prefer to be in and that is the investor class. Am I there yet? Yes and No – I have debt but I also have access to financial advice and retirement plans. I personally don’t think the definition of the two classes is as clear cut as it could be. I think there is room for a third class – the “I’m in debt but hoping to be an Investor one day soon’ class.

Previous articles

In the past I’ve written about the lottery and how it offers a brief glimmer of hope in an otherwise bleak financial landscape. I stand by that article but I want to point out that in a follow on article I spoke about the windfall mentality and the way some people who are in debt cling to the hope that they will have a windfall from the lottery or some other source and that all their problems will be solved. This windfall mentality prevents them from making any real progress on reducing their debt and as a result they become more entrenched in their belief that a windfall will save them. All the while the interest on their debts mount.

Just because you do the lottery does not mean that you are lottery class. I personally think class has everything to do with attitude. Rich people do the lottery – Whitehead’s article points this out – they just spend a lot less in both monetary and relative income terms than people in the lottery class.

So which are you?

Delayed gratification versus Instant gratification - A debtor's choice

Sep 102008

Many financial commentators make the point that one of the root causes of the debt epidemic we are now facing is the concept of ‘Instant gratification’. To me instant gratification is simply the ‘I want it and I want it right now!” attitude that seems so common today. The ‘it’ in the statement could be anything from an ice-cream to a nice new car.

If you think about it, the instant gratification culture which we have become so accustomed to has had an obvious negative impact on our financial health. Personal debt is at an all time high and savings is at an all time low as people seek that instant reassuring buzz of buying something new.

In my parent’s generation of the post war years they were thought to save hard for anything that they wanted. Credit was a dirty word and if they truly had their heart set on something they put their heads down and worked towards it – no matter how long it took. They were well versed in the practice of delayed gratification.

Now compare that to the attitude of my generation whose first exposure to the world of work and commerce was during the dotcom boom. We were bombarded with offers of easy credit and advertising that told us if we had an itch then we should scratch it, all for the low monthly payment of $99.

Sure it took two to tango i.e. me and my bank but in my defence (or should I say our defence) – ‘things were different this time’. There was plenty of employment opportunities, interest rates were at an all time low, banks were practically giving money away. Times had never been so good financially for all of us. The opportunities to make money were manifold – internet stocks, rental properties (gee didn’t they both turn out well). You name it and you could make money from it.

What changed between the generations?

To be honest I don’t know. I suppose there were numerous contributing factors. Perhaps my parents didn’t experience the same amount of media exposure as I did when they were growing up. How could they? I’m not even sure if they both had TVs when they were children. I always got the feeling that there was less pressure to conform from a materialistic point of view. Fitting in was less about the type of trainers you wore and more about the sports team you supported.

I find it hard to reconcile the stories that my parents told me about their childhoods and how they related to money as they grew up with my experience of money as I grew up. For me there was always a social pressure to conform by having the latest brand. I think a lot of my peers felt the same. This article ‘Budget for school gear soars to £600’ from The Daily Mail newspaper sums up the situation perfectly. I left school twelve years ago and I was shocked to read this article about the pressures that school kids face today as they try to conform.

Easy credit – the enabler of instant gratification

Before I allow the older generation to take the high moral ground on the whole instant gratification debate I want to point out that credit has never been easier to obtain – ever! I think one of the main reasons my parent’s generation didn’t suffer from instant gratification as bad as my generation is that even if they wanted to buy something there and then very often there was simply no credit available to do so.

Today we have both the means and the method of instant gratification at our disposal.

No longer are we forced to save for something that we wish to buy. If we really want something and we want it fast then generally speaking it is a relatively straightforward task to arrange the financing of it.

But isn’t instant gratification a personal issue?

Yes and no. Yes it is a decision that everyone makes for themselves. You and you alone can only decide if you will buy something now or you will save for it. No in that there is now such a collective culture of instant gratification that it is hard to resist the temptation to succumb. How easy is it to refuse to go on that expensive holiday when all of your friends are going? ‘I don’t have the money’ just doesn’t seem to cut it as an excuse anymore.

Delayed gratification – a long forgotten concept

If instant gratification can be thought of as a buying something straightaway regardless of whether or not you have the funds to do so, then delayed gratification can be thought of as setting yourself a financial goal and then working and saving hard to achieve that goal. The goal could be something simple like buying a new TV or it could be something bigger like saving for a deposit on a house.

What the goal is doesn’t really matter as much as the fact that you have made the choice to work hard before you consume. I’m sure you could simply whack the cost of the TV on to your credit card but with delayed gratification you are waiting until you feel you deserve it.

Delayed gratification – benefits

There are many benefits of delayed gratification.

No more buyer’s remorse

By delaying your consumption of an item and working hard to save the money to buy it you are forcing yourself to decide whether or not you really want it in the first place. Delayed gratification eliminates the buyer’s remorse that so often accompanies impulse spending.

Guilt free enjoyment

This is related to buyer’s remorse. By saving and working hard to allow yourself to fully enjoy the fruits of your labor you do not need to worry about making the payments on the item in question. If you buy a nice flat screen TV for $600 with cash that you saved then you own the TV outright and you don’t have to worry about any nasty surprizes waiting for you in the mail. You can kick back and enjoy.

No more debt

When you adopt an attitude of delayed gratification you are saying no to more debt. You have decided that is enough is enough and from here on in you want to earn the good things in life. No more taking the easy route of instant gratification via your credit card because you and I both know that that route is actually the hard way.

Builds discipline that can be rolled into financial security

Developing the discipline required for delayed gratification takes time but once acquired the attitude of delayed gratification it will serve you well for the rest of your life. By embracing an attitude of delayed gratification you are setting yourself up for financial success. The reason why is because in order to achieve anything big it takes time.

To save and invest for retirement takes time, to save a deposit for a house takes time, to save for your kid’s college education takes time but it is the time element that adds the value. In order for you to best capitalize on the time element you need an attitude of delayed gratification.

Where to start?

Small – always start small. Delaying gratification can be as simple as waiting a couple of extra days before you buy the latest edition of your favorite magazine. Wait. Be conscious about the reasons why you are waiting. Clean your home, bring your lunch to work for a day or two, do something that you think will justify you spending money on the magazine.

Take it from there. Tackle something bigger like saving for a new stereo system. Work some overtime or sell some of your stuff. Wait until you have the physical cash in your hand before you purchase the stereo system. The feeling of achievement is immense.

Now aim bigger still. Say you want to redecorate your home but it will cost a lot. Start saving. Cut your expenses where possible, save any money that you can, give yourself a timeline. Be honest about your progress. With any goal there will be set backs on the path to achieving that goal. The bigger the goal the bigger the set backs will be.

Keeping moving in the right direction, the idea here is to train yourself to become more disciplined in your financial habits. Easy? No way. Necessary? Absolutely.

The great thing about delayed gratification (the few times I’ve tried it) is that when you achieve the goal that you have been aiming for it tastes a lot sweeter than had you just gone out and bought it on credit. Not only are you getting the things that you have been working and saving for you are also getting a huge sense of achievement and satisfaction as a bonus. Sometimes the sense of satisfaction is nearly worth the effort on its own.

Laugh in the face of debt

Sep 012008

What’s the point in being miserable all the time?

At any one point in our daily lives there are a multitude of things that we can get worried and stressed about. On a grand scale things like terrorism, climate change and the economy will serve up stress. On a smaller but more important scale are the individual fears and worries that we all can have, things like work, relationships, money and in particular debt.

Combine all these things together on any single day and you have a recipe for major stress. By major stress I mean that sick in the pit of your stomach feeling like you are floating on a stormy sea of stress with no beacon of light or hope to guide you, nothing around you only miles and miles of stress.

Not a pretty image.

That said I don’t want to dwell on the negative for too long. I want to speak about a mental approach that can empower you on stressful days. In my article “The dark depressing days of debt” I spoke about how diet and sleep patterns can have a huge impact on your mood. The aim of that article was to help you to stabilize your mood. Now I want to take it to the next level.

What next level?

In my mind the next level up from stabilizing your mood is the level where you are feeling good enough emotionally and physically to start thinking about your debt and the positive actions you can take to get control over your finances.

This site is full of the positive actions you can take to make your finances better so I won’t go into them in detail here. What I do want to discuss is how to boost your mood when the world seems to coming in on top of you.

Laugh in the face of your debt

You’ve probably heard the phrase “laugh in the face of adversity” well I want to change this to “laugh in the face of debt”. A little corny – ok I’ll give you that but I think if you can put aside your reservations and think a little more about what the spirit of the saying “to laugh in the face of adversity” is all about.

To laugh in the face of adversity basically means to take anything that life throws at you and throw it right back.

The following link contains an article that very clearly demonstrates the link between laughing and stress relief – Laugh in the face of adversity: I’m not kidding. In this article the author makes the point that “Humor provides the unique opening to move forward on a positive note.”

To me this just about sums up everything that is good about laughing at your situation.

When I say laughing at your situation I don’t mean a kind of sarcastic and cynical laugh. I mean a good hearty laugh at what has gone wrong. When you laugh at your situation it has to be from a fun and positive perspective – laugh at the silliness of it all. Laugh at how silly you are to be worrying about things that are beyond your control. Laugh at how crazy money makes people.

If you can do these things and adopt a positive relaxed yet proactive attitude to your debt then I can almost guarantee that you will be laughing all the way to the bank.

The habit of staying debt free

Aug 282008

Getting out of debt is a massive achievement in itself. Staying out of debt for good is a whole different matter.

It’s happened to me and I’ve seen it happen to other people. The situation I’m talking about is where people struggle for a couple of years and eventually manage to pay off their debts. The sense of freedom is overwhelming. Then after a while – it could be a couple of months or a couple of years the sense of release isn’t as strong. The positive afterglow of achieving debt freedom has faded significantly. Not only has the afterglow faded but the fear of debt has diminished. People forget how painful the debt was.

It’s at this point that the person is most vulnerable. It’s at this point that they are likely to be seduced back into the old habits of taking the monthly payment option. Hey its okay they think – just this one time. I can manage this small monthly payment.

From this small opening the floodgates of debt usually bust wide open.

This has happened to me and you keeping kidding yourself that things aren’t that bad and that you can manage. You had a debt problem before but you are different now you are more mature now and you can handle your finances better. Yeah right!

Reality hits home

This fantasy continues on for a while until one day you realize you’ve dug yourself another debt hole – bigger and more impressive than the last one. Does this spur people into a tornado of action to try to solve the problem? Nope – it’s at this point the “why me?” self abuse starts.

Emotions run high and the pressure to do something about this new debt is huge. However this time round it seems to take longer for any action to happen. It’s a case of “How could I have been so stupid?” The fear of judgement by friends and family about getting into debt again means that the debt problem goes hidden for longer.

Since the problem stays hidden for longer the problem gets harder to solve second time round. Added to this is the very human response of “You did it again?” which to me always meant that friends and family are a little bit less enthusiastic about helping you out the second time round.

Staying debt free

Becoming debt free is a massive task in itself. The journey to becoming debt free requires you to look at every aspect of your life. You begin to see how you exist in this world and you begin to better understand your motivations for doing certain things. It can be a real eye opener. At the same time it can be a huge internal struggle. The physical element of becoming debt free is relative easy and straightforward. The emotional element of becoming debt free is huge.

In order to stay out of debt once initial debt freedom has been achieved then the focus must be on the emotional side of the debt free equation.

The habit of staying debt free is not one single habit. The title of this post is a bit misleading but I did that on purpose. It is necessary to understand that the habit of staying debt free is made up of a multitude of individual thoughts, actions and habits.

That said there is one simple rule of thumb that will allow you to maintain the habit of being debt free and that is ‘spend less than you earn’. Dull boring advice – YAWN. Yet had I listen to it second time round my life would have been a whole lot easier.

By spending less that you earn I mean on a cash for cash basis. What this means is that if you earn $2500 net per month then you should be spending less than $2500 per month on all your expenses and outgoings. This includes paying off your credit card completely each month. Ideally when you are coming out of a debt situation using cash only is the best way forward.

A new financial goal is crucial

It’s easy to stay motivated when you have a goal to work towards. A lot of the time when people achieve their goal of debt freedom they rest on their laurels. They relish their new found freedom and rightly so. But some rest for too long and fail to set a new bigger financial goal.

Once debt free another financial goal is required if focus is to be maintained on their financial situation. This is where a bigger more challenging financial goal will make the difference between staying debt free and slipping back into debt. A big financial goal could be something like building up savings of $10,000 in a one year period. Again it will depend on your own personal situation.

Two simple but very effective ideas

In order to stay out of debt once you are debt free spend less than you earn and set yourself a big juicy financial goal. Simple as that…okay okay it’s not as simple as that. If it were then I wouldn’t have so much material to write about on debt. Deep down most of us know that in order to change our situation be it financial or otherwise we need to change our behavior. It is changing our behavior that is ultimately the hardest part of getting and staying out of debt.

The dark depressing days of debt

Aug 272008

Always look on the bright side of life? Sometimes it’s not the easiest thing to do especially if you have the debt monkey on your back. Some days you feel like the whole world is against you and that everything is happening in slow motion. This isn’t a debt specific problem – I’m sure wealthy people have their bad days too.

When you are having a bad day and you have a debt problem then it seems like the world is about to end. Nothing you can do is right and you find it incredibly hard to get motivated. I liken it to walking with a lot of mud on your boots. The heavy legs feeling, the lack of mental clarity and focus, the dread of going out and meeting people.

Yeah we’ve all had them.

Why now and why today?

A couple of years ago when these bad days appeared I used to wonder why the heck it was happening and what caused them? At the time I simply thought they were just random occurrences. You were due a bad day every once in awhile. After some time I began to realize that there is nothing random about these bad days. I now put these down days to cause and effect.

So what are the causes of these bad days?

For me food plays a huge part in my mood. I’m not diabetic but I certainly think I am sugar sensitive. Stimulant drinks like coffee or sugary foods like chocolate or white bread send my mood soaring but the come down can be hard. If I eat a lot sugary foods then I know for sure that I am heading for a sugar crash. This sugar crash in turn will lead me to see the world in slightly less than rose colored glasses.

Do you think that you may have the same problem? You might have but you might not yet realize it. The following article “Does Food affect Mood” goes into the explanation as to how food affects mood in more detail. It is well worth a read.

Directly related to food is something that also has a huge impact on my mood and that is sleep.

For me sleep is sacred. I know that may seem like an over the top statement but if I’m honest I’m like a bear with a toothache if I don’t get enough sleep. If I’m working hard and have had a few late nights in a row then my mood drops off a cliff.

When I’m tired from lack of sleep I tend to drink more coffee and eat more sugary food. These give me a short term boost but then they only add to my woes as their effects begin to wear off and I feel even more tired in the long run.

The link between food and sleep works both ways. Drink too much coffee before you go to bed and you will have a restless sleep at best or stare at the ceiling all night long at worst.

The food sleep relationship can be a vicious circle for me. This process repeats itself until eventually I have a bad day. To me having a bad day is my body’s way of warning me that I am pushing it and that I am not looking after myself. Once I sit out the bad day its like my body resets itself and says “okay we cleared the junk out for now but you really do need to get it together boy”.

I usually heed this warning and try to watch what I’m eating and try to get to bed at a reasonable time. This seems to work and once I take care of myself my mood returns to normal.

The debt effect

In the previous section I outlined how my food and sleep has a big impact on my mood. Feeling bad from poor food choices and lack of sleep is one thing. When you couple them with a debt problem that only seems to rear its ugly head when you having a bad day then that is a completely different thing.

When you are having a bad day every single negative thing in your life seems magnified ten fold. The debt burden that seemed controllable yesterday is overwhelming today. These negative feelings towards your debt can cause even more negative thoughts. It is these negative thoughts that feed on your bad mood and make you feel even worse. That debt problem seems to be growing and growing as the day goes on.

If you don’t stop your thoughts in their tracks then it will make for a very bad day.

I’m sure wealthy people have these negative days. Everyone does. But if you are in debt then these bad days have that extra element of stress associated with them.

Solutions?

I’m all about keeping it simple. Here are a couple of ideas to help you reduce the effects of a bad day.

Watch what you eat.

Simple, clichéd and boring advice but what you eat and dink is incredibly important in regulating your mood. You’ve probably heard this a thousand times “you are what you eat” – that phrase is so over used but it’s so true. I’m not talking about weight gain or loss I’m simply talking about mood regulation. Food is the key.

Get more quality sleep.

No I didn’t say sleep more! I said get more quality sleep. To me quality sleep means uninterrupted stress free sleep. So that means giving yourself time to wind down and de-stress before you go to bed. Make your bedroom an oasis of calm. Like the porridge in the Goldilocks and the three bears story, your bedroom should be not too hot and not too cool – just right.

The “I will deal with it tomorrow” card

I have a personal rule that I never make big decisions on an empty stomach, when I’m tired or when I’m in a bad mood. The reason why is that my decision making skills are seriously impaired if I am not feeling 100%. When I am having a bad day I put off making decisions – especially financial decisions – until the next day. If I’m still feeling less than 100% the following day then I simply put off the decision until I am feeling better even if it is a week later.

I go as far as saying to myself that there is no point even thinking about financial problems until I am in a better mood. I call this my “I’ll deal with it tomorrow” card. This is where I feel I can legitimately say to myself that I am excused from taking any action or even thinking about stuff.

For the rest of the day my focus is then on simply getting through the day and doing what I need to do just to function. In work I’m operating on automatic. I’m not doing my most creative work but then again I know the reason why so I don’t beat myself up about it.

Simple fact – bad days happen

The best and quickest way I find to deal with a bad day is to acknowledge that I am having one. Face up to the fact that it’s going to be raining all day and try to salvage what I can from the day. Focus on the simple easy to do tasks and put my head down get stuck in and tune out all my other thoughts as best as possible.

One point I will make is that while everyone has bad days if they persist and everyday seems to be a bad day even after you have changed what you eat and fixed your sleeping habits then it might be time to consider getting professional help.

Media Diet – follow up

Aug 122008

A couple of months ago I wrote a post about the impact that media has on our spending. The constant bombardment of seductive adverts for the latest gadget would drive anyone to use their plastic. I know I’m not alone when I say that more than once I have been duped into buying something I didn’t need by slick advertising. This in turn has often blown a large hole in my budget.

Anyway in that post – which you can read here – I explained that I was toying with the idea of going on a media diet. The thought of reduced stress and anxiety coupled with more time and mental capacity seriously appealed to me.

If I’m honest the results of my media diet were very mixed.

I think its best if I break down each media channel so I can explain what happened.

Internet.

I use the internet a lot for my job and for this Blog. I find that a lot of the time when I am on browsing the web that I have lots of websites opened. The thing is none of these websites relate to each other. I could have a finance website open while at the same time I could have a sports website. My brain has problems processing the unrelated pieces of information at the same time.

The net effect of having all these websites open was that during the day my thoughts became scattered. To combat this and help me reduce the amount of time I spend on the internet I downloaded a free trial version of a website blocker software. I then loaded the details of my favorite websites into it.

Every time I tried to log on to my favorite websites I got a “page cannot be displayed” message. Initially this was very frustrating but eventually I did lose a lot of interest in those websites and my productivity did improve…for a while at least.

TV.

I mentioned in my last post about a Media Diet that I recorded all my favorite TV shows and watched them all in one go at the weekend. When I was watching them I would simply skip the ad breaks.

This had a big impact. It freed up a lot of time in the evenings as my evening was no longer centred on a TV show.

I did find that when people that I work with were talking about the previous evenings TV shows that I felt a little left out. Small price to pay I reckon.

Newspapers.

I stopped reading the daily newspapers – most of them I read online anyway so I simply blocked their websites. At the weekend I would buy one of the Sunday broadsheets. These usually give a good overview of the weeks events.

All this was shaping up nicely and for a couple of weeks I was seriously reducing my exposure to the media. The thing was that after the initial period my enthusiasm began to wane. By having my favorite websites blocked I felt that I was missing out. Missing out on what I’m not sure but I just felt that I was isolating myself in some way.

One by one I removed the block on the websites so that I could access them ‘just this one time’. I don’t feel isolated anymore and I am up to date with all the current affairs and sports results but at the same time my media exposure is right back where it was when I started this exercise. I have even fallen back into the habit of watching my favorite TV shows in the evenings instead of at the weekends. Not good.

When I am trying to be productive – either at work or trying to write this Blog – I’m back in the habit of jumping from website to website and back to writing. This leads to incredible frustration as I know what I am doing wrong but I am finding it hard to break this habit.

But Mike – what were you trying to achieve anyway?

It was easy to lose sight of the original reason for going on a media diet. My prime motivation was to reduce the negative influence of the media on my bank balance. Simple as that. As a side benefit I was hoping that my productivity would increase as a direct result of my free time.

While now it looks like my media diet was unsuccessful in a way I have achieved what I originally intended to do. Now I find that whenever I am confronted with a purchase I ask myself how much of my purchasing decision was influenced by the media. I probably won’t ever be able to give an accurate answer but at least it gets me thinking about my buying behavior.

No longer do I go blindly about my shopping. Often I find myself asking the question “Is this generic product as good as a branded one?” To me this is what going on a media diet is all about.

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Making money in Second Life – some facts and figures

Aug 062008

My quest for further information about how to make money on Second Life continues.

This is a whole new area to me so I am threading very carefully as I don’t want to get my facts and figures wrong or indeed make some Second Life newbie mistake.

So here’s what I’ve learnt so far.

You can make a million real US dollars on Second life.

One user who goes by the avatar name of Anshe Chung has made a million real USD from her activities on Second Life. I found an interview with her from a few years back when her Second Life activities were worth a real 250,000 USD. This interview is very interesting as it comes from a person who is actually making serious money on Second Life. You can read the full interview here – Virtual Land, Real money.

There are two things I want to point out that I noticed in the interview.

The first is that back in 2006 when this interview happened, Anshe Chung had a whole team of people working for her. So my advice is not to think that she is making serious money on her own. In the interview she says that at that time she had a team of about seven freelancers working for her but that she had also just created a team of ten full time people in China to manage billing, accounting and development. This is a serious operation and not a one person show.

So straightaway it gives some idea of the effort involved in generating serious income in Second life. That said our aim is create a decent second income in Second Life and not to build an empire.

The second thing that struck me was that she gave an incredibly valuable piece of advice to anyone thinking of joining Second Life to generate an income. Here is the quote directly from the Business week piece.

“To what do you attribute your success?

One reason for my success here, I strongly believe, is that I am not only here for business. I am very deeply rooted in this world, like a real native person. Most people who just come here for money fail miserably. They are foreigners, act like foreigners, and lack deep understanding of this virtual country. Many of them are also lazybones who think you just need money to make more money. The truly successful people I know here all are deeply involved in life and society here too.”

The key thing to take away from her answer is “Most people who just come here for money fail miserably”.

To me this simple sentence speaks volumes. Unless you are prepared to make the effort to fully integrate and become part of the Second Life community and experience, it appears that your chances of successfully generating an income are limited.

The figures speak for themselves.

You can check the earnings statistics on the Second Life website here.

The statistic that we are interested in is about half way down the page with the header ‘Linden™ Dollars’ and the sub header ‘Unique Users with Positive Monthly Linden™ Dollars Flow’.

From what I can gather this statistic basically shows us the number of people who are making positive income in the Second Life and how much they are making.

I’m going to use a well worn cliché – but the figures really do speak for themselves. Of the 57,821 people that generated a positive income on Second Life in June of 2008 – the vast majority earned less than $500 – 55,732 users to be exact. Most of these people earned less than $50 – 47,546 users. That’s $50 for the whole month. Not exactly a decent second income.

This makes for slightly discouraging reading. If you thought that Second Life was a quick route to riches or even a quick route to a decent second income then you need to think again.

If you examine the figures closely they seem to be representative of nearly all businesses and markets – where the top five percent make the most money. This to me illustrates nicely that Second Life is acting just like any other competitive market where there is real money involved. The winners win big while everyone else struggles on.

But Second Life is different.

Er no not really. When it comes down to it the people who succeed are those who put in the effort or as Anshe Chung puts it ‘are deeply involved in life and society’. The same with any other business venture really.

So I’m still not convinced about generating a second income from Second Life. I’m sure it can be done – Anshe Chung as well as the other 2089 users who made over $500 in June have proved that its possible.

The question is what will it cost to get to the level of income that you are happy with? How long and how deeply integrate in Second Life do you have to become in order to start generating a second income?

That’s my next bit of research…

Can’t break the cycle of debt?

Jul 292008

If you’ve been trying to shake off your debt for a while now but with limited success then it is possible that more radical action is needed. Once you are caught in the debt cycle it can be incredibly difficult to get out of it.

I have been caught in a debt cycle for a number of years now. I’ve come to a few conclusions based on my experiences and these are backed up by the experiences of my friends and from what I’ve read on the internet.

The desire to consume ‘Stuff’ never really goes away. You may tame the urge to spend for a while – maybe even a couple of years but deep down the urge to spend is still lurking and waiting for its chance to get you back into the debt cycle.

Strangely as you approach your goal of getting rid of your debt the pressure and hate of debt seems to take a back seat. You have slain the dragon that is your debt. It no longer holds any fear for you so maybe just maybe it would be okay if you charged just one small item on to your credit card. It’s okay because you have your debt under control right? Nothing to worry about you will pay it off next month.

This situation is a lot more common than you would think. Once you have got your existing debt down to an acceptable level you grow in confidence about your ability to manage further debt. Before long you are back in serious debt. I’ve seen this happen over and over again. No one ever seems to get off the debt treadmill 100% and stay off it forever.

Luckily there are a few key changes to your lifestyle that you can make to break this cycle for good. The bad news is that these changes are hard to do.

The idea behind these changes is that you are no longer in harms way so to speak. The aim of making these changes is to reduce the influences that were causing you to overspend and consume in the first place. By making these changes you are in effect trying to shut out consumer life.

Change one – Change who your friends are

I did say this was hard. The logic behind this is that if your current set of friends have been enabling you to indulge in spending then simply cut them out. You want a set of friends that will support you and understand what you are going through. You don’t want to be around people who are constantly spending or talking about spending as it will put you under pressure to spend. This is not where you want to be.

Change two – Go on a media diet

I have discussed this at length in the following post, Media diet – useful in slimming down your debt? In this post I discuss the merits of reducing your exposure to the influences of advertisers by cutting down on your media exposure. One thing I learnt having tried to do this myself is just how difficult it can be to achieve.

Change three – Pick something big you really want and save hard for it

As you approach the point of debt freedom you are approaching the hardest part of your journey. The end is in sight but your fear of your debt will most likely have diminished and the temptation to shop and spend will be huge. It is at this point that you need to give yourself a new, hard to achieve financial goal.

The goal could be something like saving for a big holiday or saving for a new car. The thing is the goal has to motivate you and no matter what you have to commit yourself to SAVING for that goal. Buying that goal on credit will be considered cheating. You must save for it.

By having a big savings goal you are taking the focus off your fast approaching debt freedom. It gives purpose to the money that you were using to pay down your debt and in turn it should limit your desire to take on more debt.

How easy are these changes to make?

Not easy at all. But don’t let that put you off. Paying down your debt is not easy but you’re on your way to doing that. The changes outlined above are necessary if you want to make it out of debt and stay out of debt and ultimately break the cycle of debt.

Even just making one of the changes outlined above should give you enough momentum to stay out of debt but if you could combine all three together then you can break the debt cycle for good.

How long could you survive if you lost your job?

Jul 252008

I’m not trying to be all doom and gloom but I want you to start thinking about how long you could survive financially if you were to lose your job. How long could you continue to pay the bills? Six months? Six weeks? Six days? I know its not nice thinking about these things but deep down I reckon most people realize that planning for redundancy is very important in today’s weak economic climate.

Have you put much thought into it? If you are like most people then the answer is probably no. That’s ok because I never really put too much thought into it either. That was until there was a series of head count reductions in the company I worked for.

It was around May 2004 and the company that I worked for at the time was going through some serious difficulties. As a cure for these problems management decided that it would be a good idea to reduce headcount by 15%. For some strange reason the department that I worked in was particularly badly hit. I estimate we lost about 40% of the people who worked there.

What really got to me was what happened to the people who lost their jobs after they left the company. I remember thinking at the time that the redundancy packages were fair and that they should allow the people who were laid off enough time to find a job. Part of me was even envious at their enforced break. The thing that I hadn’t taken into consideration was how much the jobs market had changed.

After about three months most of the people were still struggling to find work and by this stage they had spent their redundancy packages on day to day living expenses. I remember hearing that a few of them were getting into serious financial trouble because they had been sailing pretty close to the wind financially even before they lost their jobs. The loss of their jobs tipped them over the edge financially.

Stories like this got me worried. At the time my financial focus was on paying down my debts but a part of me realized that I should be paying more attention to creating a big emergency fund. But not only should I have been increasing my emergency fund I should have been doing other things to cushion the blow of any potential redundancy.

To ease my worries I set about doing three key tasks.

I gave myself a period of 4 – 6 months in which to complete these tasks. I figured that because management had just completed a round of redundancies that it would be at least another six months before they would go at it again.

The first thing I did was to calculate how much money I needed to survive and pay my bills for six months. I calculated this figure by taking my monthly expenditure on essential items and multiplying by six. I then estimated any big bills that could potentially come up in any six month period – things like car maintenance, insurance, tax etc. I added the two figures together and I came up with a figure of $7800.

I resolved within myself to save like a crazy man until I had hit that target. It was highly ambitious given that I was still repaying debts but I felt that it was the right time to be focusing on building a big emergency fund.

The second thing I did was that I tried to do as many of the internal training programs that were run by my company as I could. Everything from building rapport to client management, I did as many as I could. The training was free as it was run internally. The budget for training had been cut deeply but if you put your name down far in advance you could pretty much get on any course you wanted.

By doing a lot of the internal training it achieved two very useful aims. The first was that management saw that I was eager to learn and that I was motivated. The second was that I was developing very saleable skills that I could put on my CV and bring to any potential future employer.

Finally the third thing that I did was to begin researching the jobs market. I became familiar with the companies that were recruiting. I would scour the jobs websites maybe once or twice a week to get a feel for what was out in the market. At the same time I was fine tuning my CV. I updated it and I began to tailor it to suit the roles that I was interested in pursuing should I have been made redundant.

The net effect?

The six month period that I set myself to achieve these tasks passed without incident. Work went on as normal once the office had calmed down after the upheaval of the redundancies.

I managed to save a total of $5400 – it was short of the target but it was still some going all the same. I was proud of my achievement.

I continued to do the training courses and research the jobs market.

These tasks combined to leave me in a much stronger position than my colleagues if there was to be further redundancies. I wanted to be playing from a position of strength if I got that redundancy letter. As soon as I started to work on these tasks I took the power back into my own hands. I have to admit that it gave me an immense sense of relief to know that if worst came to worst that it wouldn’t be so bad after all.

Now it’s your turn to examine your contingency plans for redundancy. Do you have a contingency plan? Can you see the merit in having one? A lot of people get caught short when they are made redundant. They don’t have any emergency funds and as a result tend to rely heavily on credit cards and bank overdrafts – this is a recipe for disaster. Don’t let that be you. Start as soon as you can to build contingency plans for your job should it go pear shaped. You just never know what is around the next corner.

Look after yourself first – your debt second

Jul 212008

I recently read a comment on a finance website by a guy who was deeply in debt. He had a huge mortgage and had major debts that he incurred when his business failed. The thing that struck me was his comment that he thought he was losing his mind. He was having sleepless nights and during the day he was too tired to take any meaningful action on his debt.

In a previous series of articles I asked the question “Do you have the energy to fight debt?”. In most peoples cases the answer is a resounding no. The comment by the guy in debt is typical of the emotions and feelings that people experience when they are confronted by a wall of debt. Sleepless nights, worry, stress and the inability to take positive action seem to be the order of the day. I should know as I’ve been in that situation on more than one occasion.

The energy aspects and how to motivate yourself are dealt with in the ‘do you have the energy to fight debt’ article. In this article here I want to focus more on the fact that most people don’t seem to put themselves first when it comes to sorting out their debt.

When debt is coming at you from all angles the general tendency is to curl up into a little ball of negative emotions. Lack of knowledge as to how to deal with debt and lack of income to pay down the debt combine to create a very tight corner. A lot of people who find themselves in this situation tend to constantly beat themselves up. Somehow believing that things will get better if they beat down on themselves, that somehow the harder they are on themselves the quicker the debt will get paid.

This logic is clearly flawed yet the phrase ‘how could I have been so stupid’ is one that is repeated hundreds if not thousands of times.

What I learnt from my time in this tight corner is that the only person in that corner is YOU and the only person who is fighting your corner is YOU. You can be your own best friend or your own worst enemy. By beating on yourself you are not solving any problems. No matter how hard you try you cannot beat sense into yourself.

You need to be your own best friend.

The truth is that the only way you will ever get out of debt is by being your own best friend. You need to put yourself first. You need to tend to the worries and stresses you have in order for you to be effective in dealing with your debt.

What is one of the main things that the air hostess says when you are being shown the how to use the oxygen masks on a plane? Make sure to put your mask on first and then help your family. This makes perfect sense. If you can’t breathe and are losing consciousness then you are no good to anyone. By tending to your own needs first you ensure the maximum odds of survival for the people around you. If you try to solve everyone else’s problems first you are doomed.

The exact same logic applies to debt management. Look after yourself first. You are no good to anyone if your health – both physical and mental – is suffering as a result of you trying to dance the merry dance with your debtors or your family. Put yourself first. Be selfish – initially at least. Be selfish until you can steady your ship and get your finances in order. What use are you to anyone if you sit up half the night worrying and stressing and are too tired during the day to do anything about your debt?

Too often people try to tackle their debts when they are emotionally and mentally exhausted. Their efforts tend to be half hearted and misdirected. Their energy levels have been sapped by months of stress and worry. As a result their efforts tend to have minimal impact and they end up becoming more and more frustrated.

So how to put yourself first and your debt second?

Your goal is now to focus on giving yourself some breathing space so that you can get some perspective on your problem. I’m not saying you should go on an expensive holiday – far from it. I’m saying that you take a day or two to sit down somewhere quiet and brainstorm two lists.

The first list is all the things that you can do that will improve your mood. These activities have specifically to be low cost or no cost. Things like improving your diet, more exercise, more time with friends and family, a new low cost hobby. You get the picture.

The second list is a list of all the things that you can do to get yourself out of debt. These things can range from the simple to the hard – from selling your home to collecting coupons. Write them all down.

Now for the hard part, take one item from each of the lists and do them. Continue to do them until they are having a positive impact on your debt and on your mood. Once you have established these items as habits move on to the next item.

The key message here is to look after yourself – both mentally and physically. Otherwise you won’t be able to look after your debt. You will be no use to anyone if you’re a burnt out physical wreck.

Motivation to act on your debt

Jul 152008

I’m generally not into using scare tactics to motivate. I’m much more of a carrot than a stick type of person. My attitude is that you attract more bees with honey than vinegar. I have an encouragement philosophy when it comes to motivating. Rewards and gold stars are the order of the day.

However every once in a while I tend to go over to the dark side and use scare tactics. I don’t like doing it but I sometimes find it extremely effective. Often when I am trying to motivate myself and others I find that the softly softly approach only gets you so far. The results are much better when I stop being so nice and I focus on getting the job done by whatever means possible.

So now it is your turn.

Up to this point I have been encouraging you to tackle your debts in a nice positive way. Telling you that it will be alright and that everything will be fine if you just tweak your budget a bit. When in reality if you are not moving towards your goal of debt elimination and if you are not taking serious positive action then you are heading for trouble.

They say you have to be cruel to be kind and I think this is definitely one of those situations. I’m not doing this to hurt. I’m doing this to scare you into action.

I want you to read the following articles and imagine the torment these people must be going through. How tough and difficult life has gotten for them. I’m not trying to belittle them in anyway I simply want you to look at their situation and how it got so bad for them. I want to shock you out of your mental paralysis when it comes to your debt. Debt can happen to anyone of us and when the consequences come they tend to come thick and fast.

The Foreclosure Story Number 2: $136,000 a Year Income to Foreclosure.

Foreclosure, a personal story

Tent city

California town creates parking havens for homeless

Now that you have read the articles I want you to use the fear of those situations to motivate you to take action NOW. Every minute you wait means that it is a minute longer that you have to spend in debt. Make that call, find that bank statement, pay that bill. DO IT NOW.

Life plans instead of debt management plans

Jul 112008

One thing that use to get me as I struggled with debt is the idea that all debt management plans seem to be focused on the financial side of life. Duh! I hear you say ‘Of course debt management plans are going to be focused on the financial side of your life’. You see initially I made that mistake too.

For years I would struggle with the one sided nature of the debt management plans that I created or that were created for me. The huge problem with the debt plans was that while they very adequately covered my need to repay debt they offered absolutely no guidance on how I was to live my life on a day to day basis. All that debt management plans ever showed me was a bunch of numbers on a page and a set of targets that needed to be reached.

Now I don’t know about your experiences with debt management plans but in between all those numbers on the plan you have to squeeze in a life somewhere, somehow.

Honestly do they want us to become monks? Live a life of servitude to the banks? Ok we got ourselves into this and we are the only ones that can get us out of it and I wholly accept that. I have written about taking responsibility before but the point I am trying to make is that the vast majority of debt management plans are unrealistic and excessive. People don’t change overnight – old habits die hard.

Why are debt management plans so oppressive?

It primarily depends on who designs them.

If you design your own debt management plan, initially at least you will tend to be over optimistic with what can be achieved. Trust me on this. I have done it over and over again. I start out with what I think is a tough but achievable debt management plan but it suddenly turns into a punitive anti social whip which I use to beat myself if I strayed from it. I never allowed for everything and even when I thought I had been thorough I would miss something. After a couple of weeks on the plan I will slip back into my old routines and habits. I would come away from the whole experience dejected, disillusioned and still in debt.

If someone else creates a debt management plan for you then they tend to be even tougher still. Let’s say for example you decide to use a debt consolidation company. The person on the other end of the phone does not know you and unfortunately probably does not care too much about you as a person. They will see your income and expenses and using the latest debt management software optimize your spending. Needless to say the software will simply take every spare cent you have and put it against your debts not taking into account the softer things in your life like the daily newspaper or the occasional trip to the cinema. No it’s off to live in a cave for you.

What’s the alternative?

I found through hard fought experience that the best debt management plan is the one that incorporates a life plan.

What this basically means is that you cannot and should not create your debt management plan in isolation from your life. By life I mean the elements that make up your day to day living – things like your daily routines and habits, the time you spend and how you spend it with your friends and family, how you relax and unwind, how you have fun.

You have to look at the WHOLE picture of your life when you are creating a debt management plan. There is no point in sitting and hoping that you can stick to some ultra rigid debt management plan that will help you pay off your debts quicker but will mean that you will sacrifice a lot. Don’t get me wrong there WILL have to be sacrifices if you want to get out of debt. There WILL be changes if you are to shake off the shackles of debt. BUT you need to get perspective on the whole process. No debt management plan will succeed unless you make allowances for who you are.

My advice is simply this – don’t push the boat out too far when you are creating your debt management plan. Yes I know you have an urgency to get rid of this horrible debt that has been tormenting you but please be patient. You need to take a measured and realistic approach to it. If that means that it will take an additional year or two longer than you hoped then so be it. The end goal is the same. What you are trying to avoid is the endless start stop cycle that so many people trying to get out of debt get stuck in.

It’s like starting any new venture – you’re going to make mistakes – lots of them. The key thing is to try to do as much preparatory work by educating yourself so that you can try to avoid as many of them as possible. Can you avoid all the mistakes and make a perfect debt management plan? – No chance. You’re going to make mistakes but that’s a good thing. I’m just asking you to try to map out a plan that will help you avoid the main mistakes that people make as outline above.

The end of your debt is nearer than you think you just have to focus your time and energy on it.

Frugalistas – Frugality goes mainstream

Jul 102008

I knew it wouldn’t be long before it happened. For the fashion conscious among you the credit crunch is starting to show a silver lining already.

It appears that being frugal is becoming very fashionable. The credit crunch and how to be frugal are now the latest hot topics at dinner parties. I have to admit that I am impressed by the fashion industry’s ability to take advantage of what most other businesses would regard as a crisis.

Fashion companies, instead of sitting there moaning about how their sales have collapsed are embracing the whole credit crunch with gusto. At the same time they are capitalizing on people’s concerns about the environment too. The articles in the links below go into great detail as to how big business is cashing in on new economic and environmental trends.

The cynic in me thinks its just good business sense for the fashion industry. Another part of me thinks that anything that makes frugality more socially acceptable is fine by me.

Have a read of the articles below and make up your own mind. There are some great tips on saving money and some unique ideas on how to make it fun. As they say – frugality is the new black. J

The Frugalistas: Meet the women who can show you how to beat the credit crunch in style.

Penny Pinching Looks Great

Proud to be prudent: Meet the new army of frugalistas

Is Inflation a debtors’ best friend?

Jul 042008

Inflation is defined as the rise in general prices of goods and services over time.

Inflation erodes the value of a currency over time. Or put more simply in an inflationary environment a dollar today will buy you more of a good or service than the same dollar will buy you in a years time. So over time the value of the dollar in your pocket is worth less and less.

Inflation has been portrayed as the great bogeyman of the world economy. In Europe following the Great depression and hyperinflation in Germany the Nazis came to power. It wasn’t the only reason for the rise of the Nazis but it was a very significant contributing factor. For more on this read this Wikipedia link.

Ok history lesson over let’s get back on topic. We’ve established that inflation is seen as the biggest threat to the world economy. But does that mean that inflation is bad for everyone? Not necessarily. There are people who can gain from inflation. The people who gain the most are people in debt.

Sure you are paying more for your groceries and gasoline but let’s imagine the situation where you have a lot of debt – student debt, credit card debt, personal loans. When inflation is on the rise you benefit as the amount of money you owe is less over time. Inflation erodes the value of money. Inflation is eroding the value of the money that you owe so in theory you owe less.

Hey whoooah easy tiger I’m not finished yet. Before you break out the champagne there are a few criteria that must exist in order for inflation to eat into your debt.

First off to really see the benefits of inflation you to need to have your debt at a fixed rate of interest. The reason for this is because as a general rule of thumb governments and central banks raise interest rates to combat inflation. If the interest on your debt is at a variable or floating rate then you are going to feel pain as the interest rates will increase your repayments. If your debt is at a fixed rate then you need not worry about the rising interest rates and you can relax as inflation erodes the value of your debt.

Secondly to see even more benefits from inflation you need to be in a job or position where you can negotiate a pay rise to match the increase in the cost of living.

If you can negotiate a pay rise of say 4% and inflation is currently at 3% then that is a net gain to you of 1%. It is this additional 1% that can then be used to pay down your debt. Better still if you have fixed the interest on your debt then your additional 1% will go even further.

However even for debtors inflation is a double edged sword

While the scenario outlined above is quite positive for debtors the reality may be somewhat different. The view I have presented is simplistic. There is a reason why inflation is seen as a bogeyman for the economy. As things get more expensive – oil, gas, food – businesses can struggle. When employees start demanding more pay increases the businesses can struggle further still. Eventually a lot of companies go out of business and a lot of people lose their jobs.

So you see while inflation can help the debtor who has fixed their interest rates the chances are that their may be a risk to jobs. So while you may think Inflation is a great thing from a simple erosion of debt point of view be wary that it is not also eroding your job. No matter how bad your debt is at least if you have a job or an income there is more hope than if you don’t have any income at all.

Who is trading in your debt?

Jul 032008

A market exists for your debt. A market where debts that you thought were gone and forgotten are sometimes brought back to life. As a debtor it is important that you have at the very least background knowledge of how the debt collection industry works and what practises the debt collection agencies use once they buy your debt.

Companies are trying to profit from the misery that debt brings. Instead of being creative and trying to help people in debt come up with solutions to their debt problems a lot of these companies compound the misery of debt by instilling fear.

I have done a lot of research on the web and I have found three very useful websites and articles that will give you an insight into how the industry works. Use this information to your advantage. Learn from other people’s mistakes and learn how the system works so that if the debt collectors do come calling that you know your rights.

For a detailed overview of the debt collection market and how it came about read this article by Bob Hunt. Collecting Consumer Debt in America. Bob gives a very good analysis of the debt collection industry and the factors that have influenced its development. Very interesting and worthwhile reading especially as it shows the trends in the industry.

The Boston Globe website has a special report that takes an in-depth look at how debt collection agencies conduct their practices in the pursuit of outstanding debts. This special report provides valuable information and details of other people’s stories about how they have been treated by debt collectors. It can serve as a warning that when the debt collection agencies get involved you know that you are in for a tough time. The series is called Debtors’ Hell.

Finally PBS did a great frontline show that can be watched online. The program is a few years old but the same things still applied today. In fact they apply more so today than ever. The show is called “Secret history of the credit card” and I highly recommend that you watch it.

Knowledge is power. I have said it before and I will continue to say it, just like a broken record, the key to escaping your debts is by increasing every aspect of your financial education. The more you can learn about debt and debt management the quicker you will eliminate your debt. The resources listed above are great places to start.

Media diet - useful in helping to slim down your debt?

Jun 272008

Nine hours a day.

That’s how long it is estimated that the average person is exposed to media. That’s nine hours a day where you are either watching TV, listening to the radio, online or reading newspapers/magazines. That’s nine hours a day that you are being constantly bombarded with advertisements urging you to buy something that is bigger, brighter and better than what you already have. That’s nine hours a day that you are being made to feel inferior by those smart advertising people.

We take our daily exposure to media for granted. We don’t even think twice about it. But when you do stop to look at what is being repeated constantly on the TV or on the internet you come to notice that it’s pretty much all doom and gloom. Even on a good day the news is always bad. From a mental health perspective this can’t be good. To me listening to bad news all day and being exposed to advertising does to the brain what constantly drinking soda does to the body.

Yet I am the first to admit that my exposure to media on a daily basis used to extend to a lot longer than nine hours. I estimate the figure to be closer to thirteen hours. I’m a media junky or I was until very recently.

A few months back I started to record my favourite TV shows. The reason was because I was too busy with work to watch them. As a result I would end up watching my favourite TV shows at the weekend except there would be no advertisements I would simply fast forward through the ad breaks. I stopped watching the news – again because I was too busy. I seriously cut down on my online browsing of websites. The net effect was that for a couple of weeks my exposure to the media had decreased from about thirteen hours a day to about five.

Then a strange thing happened.

I no longer had that panicky feeling when I was stuck in traffic on my way to work. That silent urge to get to my desk and see what had happened in the hour since I last was at a computer. I had a feeling of liberation. It was short lived but it gave me a glimpse of what could be achieved if I made a determined effort to cut down on my media consumption. It got me thinking about this blog and about debt and about how we are influenced by the things we see in the media.

I estimate that the impact that the media has on debt and spending habits is huge. It makes sense if you think about it. The more you are exposed to the adverts for “the good life” the more you will want to have the good life – no harm in wanting the good life – but when you are using debt to fund it then it can become a problem.

Realistically it will be almost impossible to cut all media out of your life. Short of living in a cave you are going to find it very hard to do. However there are some serious benefits to be had by cutting down on the amount of time you are exposed to TV, the internet etc.

Going on a media diet will serve two purposes

Firstly it will help reduce exposure to advertising which in turn will in turn reduce the amount of reinforcing messages you are exposed to which tell you to buy stuff you don’t even need. One of the fundamental principles of advertising is that the more often a consumer is likely to see an advert the more likely they are to buy the advertised product.

The second benefit is that you will be reducing your exposure to all the negative financial self talk. Have you noticed that there is nothing but doom and gloom in the news about the state of the world economy? How we are all heading for a financial disaster that will rival the depression, nothing but bad economic news. You don’t need to hear it. If you are continually listening to negative ideas about the economy then you will start to believe it is true. If you believe it is true then it will become true. Everywhere you look you will see signs of how bad things are getting. It will become a self fulfilling prophesy.

I’m toying with the idea of going on a media diet. An almost complete shut down of my media consumption. The idea would be that I reduce down all media consumption apart from that needed for my job and for leisure. So I would stop watching the news, I would stop reading the newspapers. I would record TV and skip through the adverts.

Instead I could use the time I currently spend on media to do something much more constructive like calling friends or reading books.

The benefits of going on a media diet are obvious but I still am struggling with the concept of going on one. I think that the media has become such a fundamental part of life, my life, that to remove it would take a lot of energy. Energy that I think I could use focusing on some other area of self improvement.

In Debt? Don’t try to cut everything all at once.

Jun 262008

When faced with a person with a debt problem one of the first standard pieces of advice thrown out there is “Cut back on your spending completely”. Sound advice I might add but not always the most appropriate advice. I find that it’s a very easy piece of advice to give “Cut way back on your expenses and everything will be ok” but you already know that this isn’t the case. If it was that easy to do you wouldn’t be reading this article because you would have had no problem cutting back in the first place.

I accept that if someone is in debt then radical action is needed. However telling someone to cut back on expenses is a bit too general. It’s not so much what to cut back on – a simple tally of your monthly bills will tell you that – rather the key thing that I feel is missing is the ‘how’ to cut back element.

From your experience, what happens if you try to cut back everything at once? You go into a state of cold turkey. Your mind gets overwhelmed by this new behavior. Spending danger lurks around every corner and you get exhausted from trying to keep your mind focused on not spending. But no matter how hard you try and no matter how much you focus on ‘not spending’ your money just seems to run away from you – sometimes at an even faster rate than before.

What causes this? Well there are a couple of things at play in this. The first is that you are focusing on ‘not spending’. When confronted with a spending opportunity the natural response is to say to yourself is something like ‘I must not spend, I must not spend, I must not spend’. However all your brain will process is the doing part of the sentence which is the verb – spend. So all your brain will hear is “Spend, Spend, Spend”.

Ironic I know but studies have shown that how you phrase something is key to changing your behavior. So what you need to do is to rephrase what you say in relation to your spending. Don’t talk in terms of spending and buying or expenses, talk more using terms like saving, investing, reducing. For example instead of saying “I must not spend” you could rephrase it to something like “I must save more”. The difference is small in terms of the words used but in the long term the difference it makes to you mentally will be very significant.

The second and most important aspect of changing your spending behaviour is the speed at which you do it. This is a tough nut to crack as there are a number of variables at play. How much debt you have will be a factor in intensity of your desire to get a move on and start making cuts. What your current level of spending is now is likely to also have a huge bearing on your ability to make cuts. The more spending you are currently engaged in on a day to day basis the harder it will be for you to make drastic changes.

Slow and steady

The average time needed to change a habit is estimated to be anywhere between 21 and 30 days of repeat behavior. What this means is that if you want to change a habit you need to spend at least 21 days repeating the new more positive habit – consistently – day after day.

A lot of the time people assume that the habit they need to change is their ‘spending’ habit. This way of thinking is not 100% accurate. A much better way to think about it is that your spending is just the umbrella for a whole host of different habits. If you want to make real progress in your spending then break your spending down into its component habits.

Your spending pattern is probably made up of dozens of habits, each habit feeding into the next while all the time your money is disappearing.

So if your spending is made up of dozens of spending habits then you need to identify them. To help you do this it is simplest to think of your average week and how you incur your spending. For example do you buy a paper with your morning coffee? Do you buy that coffee on the way to work as you stop off for gas? When grocery shopping, do you shop when you are hungry? At the weekends do you simple amble into the local shopping mall just to kill time but have no clear plan about what you need to buy?

Each bad spending habit that you can identify needs to be put down on a list. You then should write down what a positive spending habit would be that would counter the bad spending habits. This will take time and some imagination but it is well worth it. Finally you need to identify the one habit that is doing the most damage to your finances.

Remember slow and steady.

Having identified the one habit that is doing the most damage to your finances you need to resolve to change that habit and that habit alone. Do not try to change more than one habit at a time!!! Focus all your energy on changing that habit. Stick with it for at least 21 consecutive days. Once you are happy that you have changed that habit then move on to the next most expensive habit.

You may have the urge to change a lot of habits at once. This is understandable, once you have made a firm decision to tackle your debt you will want to get moving as fast as possible. Don’t – take your time. The problem with trying to make a raft of changes in one go is that you cannot allocate enough energy to each of them to make them permanent. There is a saying that goes ‘the more hurry the less speed’. I believe this is true for debt management also. If you rush into making a lot of changes you are likely to lose motivation as you don’t see the changes you would have hoped for.

By tackling your biggest spending habit and focusing on it for at least 21 days you will make a lot more progress than if you simply tried to tackle five smaller spending habits at the one time. Don’t try to cut everything all at once. Doing so is simply a recipe for frustration. Don’t be tempted. Focus on one spending habit at a time.

Foreclosure of a dream

Jun 192008

I recently heard the sad story of a single mom who had her home foreclosed. This is a story that has become depressingly familiar and has been repeated thousands of times over and will be repeated thousands of times in the next few years. No two cases are exactly the same but they all seem to have a common thread running through them. However this story is worth repeating if for no other reason than to show how you can be seduced by easy credit only for the dream to turn sour. For those of you facing a similar situation take strength from the knowledge that you are not alone and that the mistakes you have made were not necessarily all your fault. For those of you in debt take a warning from this story as to how bad things can get if you do not face up to your problems now.

To protect her identity we will call her Michelle. Now Michelle came from a disadvantaged background to begin with. Her Dad left home when she was young and her Mom struggled to raise her and her two brothers the best she could. Michelle grew up with strong principles of right and wrong and despite her background she did well for herself.

Michelle was a hard working single mom. She had a job in a local company doing administrative work. She enjoyed her job. In spring 2005 she spotted an advert for mortgages. What caught her attention was the fact that the mortgages on offer were ‘no money down’ – she didn’t need a deposit or any assets to get the mortgage. Too good to be true.

Initially she was worried about being able to meet the mortgage payments and the fact that she had a spotty credit history due to some late payments on an auto loan. However when she called the mortgage broker she was assured that she would be able to afford the monthly repayments and that her credit history wouldn’t be a problem. In fact she was quite pleasantly surprised at the low monthly payments. This of course was to be her undoing. The mortgage broker either didn’t mention the rate reset on the mortgage or mentioned it in terms so obscure and alien to Michelle that she didn’t understand them. Either way a couple of years later Michelle was in for a nasty shock.

With tears of joy Michelle took the keys from the real estate agent and opened the door of her new house. For two happy years Michelle enjoyed her home. It was no longer just a house to Michelle it was her home. She made a great emotional investment in it. She spent every spare moment she had working on the house. It was her pride and joy and it was a safe place to bring up her young son.

In June 2007 Michelle received a letter informing her that her mortgage rate was to be reset to a much higher rate. Her monthly payments went up by $300. Like so many other people she was stunned. She was not expecting such a large increase in payments but due to her poor credit history she was charged a higher rate.

To make matters worse she was already behind on another loan and was getting letters from the bank about it. She did have a small amount of savings but this was simply eaten up by trying to meet the new higher mortgage repayments. It wasn’t long before Michelle fell behind in her mortgage payments. Her situation got so bad that in November last year her home was foreclosed. Michelle was devastated.

Michelle’s story is similar to so many other stories of foreclosure. All that Michelle wanted was a home that she could raise her son in and enjoy life. She had a dream and that dream was home ownership. In reality what she got was a nightmare.

What are the lessons to be learnt? Hindsight is always 20/20 and people can always tell you what you should have done after the event has happened. However there is value to be had from learning about other people’s mistakes. There were a couple of obvious mistakes that Michelle made that could have been avoided.

The biggest mistake Michelle made and probably the single most important thing she could have done was to learn more about her mortgage and about personal finance in general. It doesn’t matter what state your finances are currently in, the more you learn about personal finances the quicker you will solve your financial problems. Financial education is the single most important thing that you can obtain. If you have any spare cash invest it in yourself and in your financial education. You need to know as much about personal finance as possible so that you won’t be taken for a ride.

In Michelle’s situation it was not properly explained to her about the rate reset but whose fault was that? Was it the mortgage brokers? Or was it Michelle’s for not knowing enough about mortgages to ask the question?

In reality Michelle should never have been approved for the loan. The lenders were too easy with the credit and in a lot of ways the banks and financial institutions have no one to blame for their current problems only themselves. But that’s not the point. The point is Michelle was given a loan she clearly should not have qualified for. This was unfair on her. She was given the dream only for it to be snatched from her two years later.

The housing market for people like Michelle was one giant Ponzi scheme. Michelle just happened to be a willing victim. I know some of you reading this will say ‘good enough for her’ but I think you are missing the point. Michelle wanted the dream of a nice home in a nice area and a secure future. Don’t we all want something like that? Who is to say that we might not be next?

In Debt? – get your emotions out, get over them and get on with it

Jun 162008

One of my pet hates is to see newspaper articles about people in debt. The reason why is because the people in the articles are nearly always cast as helpless fools. The picture that comes with the article is nearly always one where the people stare into the distance with a tear in their eye. I think it is highly disrespectful to the people involved. The people in debt are nearly always at their wits end and can see no future. The last thing they need is to be lampooned in public.

I always get the feeling from these articles that for the people involved view it is a last resort. A public cry for help. I imagine that if their debts were under control that they wouldn’t feel the need to tell the world about it. I could be wrong but it seems that they may have left things too late to do anything and they are throwing themselves on the mercy of the public. I feel terrible that for them it has come to this. It does serve as a salutary warning but at the same time it doesn’t really offer any insight as to how you can pay off your debts faster. If anything the articles only tend to reinforce the view that there is no way out of debt.

In my opinion people in debt spend too long caught up in the emotion of debt and not enough time tackling the debt. They sit and stare as the debt grows bigger and bigger yet they remain frozen by their emotions. Like a deer caught in headlights they cannot move. When they do eventually come around and try to start doing something about their debt then they find it extremely difficult as they are emotionally and physically drained from worry.

When people realize the magnitude of their debt for the first time they sometimes adopt a ‘close your eyes and it might go away’ attitude. Eventually the debt becomes such a huge problem that they have no choice but to do something about it. For many at that stage it can be too late. The damage is done. While it is not impossible to fight their way back, their lack of initial action has makes it a lot harder. What makes it even harder is that their emotional energy is at an all time low. It’s no coincidence that debt problems coincide with relationship problems. The two almost go hand in hand.

I’ve often asked myself why there is a time lag between when the realization occurs that debts are a huge problem and the time when the people start to do something about it. I nearly always come back to the same answer. The emotional stigma and drain involved can be a huge factor. Being in debt is often seen as a failing and as a result people do not want to admit that they made a mistake. The problem is that by delaying the admission of the mistake the problem only grows and valuable time is lost.

Open the emotional floodgates

If you feel that you have a debt problem but you are stuck in that frozen stage of self denial then talk to someone. Talk to someone you can trust in confidence – a friend, a counsellor or someone you know you can be honest with. Tell them that you think you may have a debt problem and that you are worried and you don’t know what to do. Let the emotional floodgates open, cry, get angry, get scared. Go through the full range of emotions. Clear out your emotional system.

By opening the emotional floodgates you have a release. You release all those emotions that have been pent up in you. There’s no point in hiding from these emotions. Hiding from them serves no purpose whatsoever. The problems will still be there when you come out of hiding except probably much bigger. Acknowledging that you have a problem and dealing with the emotions that come with that problem is key to getting out of debt.

By tackling the negative emotions that surround a debt problem you are laying the foundation for an effective solution. If you try to tackle your debt while still carrying all the emotional baggage associated with you will find the going a lot harder than it need be. It is easier and more effective trying to tackle your debt if you are coming from a place of strength rather than a place of weakness.

Dealing with those emotions of fear and dread are the first step in any debt management program. Clear out the mental clutter of negative emotions. If you continue to carry these emotions with you as you try to tackle your debt you will be handicapping yourself needlessly. The problem of debt needs to be reduced to the simple formula of money in less money out. If you can take care of the emotions then it leaves you more energy to focus on using this formula.

Is it easy letting go of the emotions? No – it’s very difficult. Fear, worry and denial are never far behind when dealing with debt. The point I’m trying to make is that while negative emotions will continue to haunt you as you tackle your debt you can make your journey a lot easier by acknowledging those negative emotions and doing something to counteract them. Talking to someone and having a good moan about your situation is tremendously helpful but don’t make the mistake of getting caught in the ‘woe me’ trap. Where all you do is moan about your debt and how your life is crap. Get your emotions out of your system, get over them or at least accept them for what they are and get on with dealing with your debt. Remember no one else will do it for you.

Reject Society and you’ll pay off your debts a lot faster.

Jun 132008

I’m not here to push some socialist agenda on you. As I said in previous articles I’m one of the most pro-capitalist guys you can meet. Seriously. Now what I am about to say is at odds with my economic philosophy but there is a method in my madness. I’m here trying to make a difference in your life by encouraging you to take new approaches to getting out of debt. If you want to pay off your debt in the quickest time possible then the easiest way to do it is to reject society or more accurately reject the consumerist aspects of society.

This isn’t a new idea and I have to admit that I got the seeds of this idea from the ‘Buy Nothing Day’ movement. The idea behind the ‘Buy Nothing Day’ is to raise consumer awareness and get people to focus on consuming less and producing less waste. If you are in debt then by rejecting consumerism (for a while at least) you are achieving two things. The first is that you will, by default, have a lot more cash. The second is you will be doing your bit to help the environment as you will be consuming less and therefore less packaging is needed.

Reject Society? How exactly do I do that?

Its not as hard as you think and it doesn’t involve walking round waving a placard with ‘The end is near’ written on it. The easiest way to reject consumerism is to do nothing or do very little. More specifically continue to do your job, continue to meet your friends, continue on as normal except only shop for the necessities in life. Quit visiting the mall for the sake of it. Stop using your credit cards, stop taking out loans, Start shopping in discount stores, start buying own brand products, stop being a label junky, bring your lunch into work, buy in bulk, if you want something save hard for it. Make credit your enemy.

There doesn’t have to be much change in your day to day activities. In fact no one has to know that you have decided to take a break from consumerist society for a while. Your friends won’t know, your neighbors won’t know or care, your workmates won’t know. Take a little time out to recharge your batteries and recharge your finances. Reject materialism. Invest time in yourself, in developing your relationships with your friends and family. These things don’t cost money and in the long run you will get a much better return that you will on a hundred pairs of shoes or the latest SUV. By investing time in yourself and your relationships you are making a stand for who you really are when all the trappings of consumerism are stripped away. I’m sure you’re a lot different type of person than the person that the marketers have you typecast as.

Why am I advocating such an extreme lifestyle change?

Simple really – it has been extreme spending that has caused people’s debt problems and in most cases it will take extreme action to rectify their financial situations. Remember you don’t have to live this lifestyle forever, you just have to do it until you are back on track. Long enough for you to see that there is an alternative to the constant merry go round of work – spend – debt – work. You can break the cycle and by not buying into the marketers crap you will see the world around you in a totally different light. One where the true value to be had is in the relationships we build not in the things we buy.

Be selfish about your motive for rejecting consumerism. Remember no one is going to help you out of debt only YOU. By adopting a self-centered approach you will achieve debt freedom a lot quicker. Ironic I know but debt freedom is all about you and your financial situation not about that of your neighbors or friends. Look to the future and to the time and place where the stress of debt no longer exists for you. This is the place you want to go and by rejecting consumerism and material things you are going to get there a lot quicker than you thought possible. Of course once you reach that point you can spend spend spend – but that’s a whole different article.

Do you have the energy to fight debt? Part 2

May 292008

In part one of we spoke about the way your thoughts can drain your mental energy leaving you in no fit state to tackle your debts. The tiredness associated with tackling your debts is primarily a mental tiredness. As mentioned in part one this mental tiredness is related to the mental clutter in your life. Clear the mental clutter and you will free up mental capacity and mental energy to allow you to focus on your debts. It’s not just your thoughts that can drain you though. Your environment plays a big part also.

Is your home clean and clutter free?

I don’t mean to pry but is your home clean? The reason I ask is that you are less likely to want to sit down and do some work on your finances if your environment is messy and its stressing you out. Don’t get me wrong – I’m not a cleaning fascist. I’m just making the point that a clean and clutter free environment will help clear your thinking. I’ll give you an example. If I don’t clean the kitchen and put away the dishes from the night before then the next morning I get a little stressed. Here in front of me is work that I should have done yesterday. I am reminded that I have been lazy and that I have a pile of work today and next thing you know I have the whole Chicken Little complex that the sky is going to fall.

If your home is cluttered your thoughts will be cluttered and if your thoughts are cluttered you are going to suffer from inertia. Then it’s back to square one. Check out this link for information on how to declutter your home. Discover organisation

Sorting through the paperwork

In theory this section deserves an article by itself but I want to make a few key points here.

Part of the problem with tackling your debts is the lack of a clear picture as to your income and expenses. To begin with most people don’t know where to locate the paperwork that relates to their finances. A lot of it gets lost in the clutter of their homes – some gets thrown out in the thrash, some just disappears.

As a very simple action that is easy to implement I suggest you get a big cardboard box. In this cardboard box place absolutely every piece of paperwork that even remotely relates to your finances. So into the box goes bills, bank statements, credit card statements, till receipts, credit card receipts, letters from banks, credit card offers, loan offers. Do this for a month but don’t bother looking at the contents of the box for that time. Just continue on as you would normally do, paying the usual bills that you would pay.

Make sure to give yourself a month. This is important for a number of reasons. First off you will need a months worth of financial information to help you form a budget and get a clearer understanding of where you are financially. Secondly you will need at least a month to help you move mentally from a place of resistance and inertia to a place of action. You will need to build up the mental strength to tackling the contents of the box. Especially because you will probably not like what you find in the box.

Virtuous circle

To give yourself the best chance of finding the energy to tackle your debts you need to create a virtuous circle. A virtuous circle is the opposite of a vicious circle. With a virtuous circle each positive action reinforces the existing positives and in turn creates more positives. Compound interest is an example of a virtuous circle. You can earn interest on the interest that you have already earned.  Even Einstein had a lot to say about compound interest calling it “the most powerful force in the universe”. A virtuous circle can be a very powerful thing. If you manage to get even the smallest virtuous circle going in your life then the effects it has will be profound. How to complete the loop of your virtuous circle? Well that is entirely up to you.

In Debt? – Let go and move on

May 272008

It’s hard to believe that the party is over. The last few years that have been so good to so many people are now over. Years of excessive spending fuelled by easy credit have now come to a bitter end. The banks were literally throwing money at us and boy did we stand up and accept their challenge. Yes we can spend more than our neighbors and Yes we will spend more than our neighbors.

Then it changed, at first a whisper of change and then suddenly a roar of change. We all became familiar with the term subprime and what it meant. It basically meant that banks no longer want to know. They don’t want to know you or anything about your debt situation. The nice man down at the bank no longer works there anymore. Those tricky loan forms have become even trickier without his help.

Where does that leave you now? Your debt didn’t seem so big and scary when you were been given easy money by the banks.  But now after the tide has gone out it seems that your debts are an even bigger problem that you first thought. Your escape route of more easy credit is drying up fast and you’re finding it hard to make ends meet. At first you were stunned but now you are slowly coming round to the fact that things have changed. So how have you responded? Have you made changes to your lifestyle to match your changing circumstances?

The lifestyle you have become accustomed to has been the cause of your debt. The question I have is why are you still living that lifestyle? Why do you still go for your latte in the morning? Why do you continue to pay lip service to cutting up your credit card yet we still find you down the mall at the weekends? Why haven’t you downsized your car yet?

What is so precious about the lifestyle that you cling to so dearly? Are you worried about what the neighbors will say if you downsize your car? Worried about what your friends might think when you don’t meet them out for dinner anymore? If you think about it most of the people you know are probably in a similar situation. Everyone is impacted by this debt storm in one way or another. Why should you be a martyr to a lifestyle that is no longer useful?

Times have changed – but for many they are still living in the past. Still living the highlife and not realizing that the music has stopped and the smart people already left the party long ago. Isn’t it time you did the same? Get up now and leave the credit party. Go home and take stock of your situation and realize that times have changed and its time to do something about it. Its time to let go of your old lifestyle and move on to a new lifestyle based on financial awareness.

Did Self Help books cause your debt and ruin your life?

May 232008

I really enjoy reading self help books. They give me an emotional kick and the powerful words have helped me through some tough times. However the cynic in me has always questioned some of the claims made in them. Is it really that easy to make a million? Someone once said that the people who made the most money during the gold rush were the people who sold the digging tools. I think in a lot of ways this applies to the self help industry. I also think that the self help industry can take some of the blame for the current tsunami of debt.

Let’s cut to the chase. When you read a self help or motivational book you are generally looking to feel good. Sometimes you are looking for answers and other times you are looking for ideas. It was the ideas contained in some of these books that in part caused the debt problems of this generation. I am talking in particular about financial self help books.

As the boom in technology stocks began to fade a number of books appeared on the market. These books claimed to have the key to wealth. The premise of these books was that people who worked in jobs were fools and the only truly successful people were investors who managed to create a passive income. In one book I can think of, which shall remain nameless, the author was relentless in his recommendation of property. He went on at lengths as to how he bought condos left right and center and how his cash flow was positive. This got people thinking – if he can do it then so can I.

I genuinely believe that it was books like this and others that prompted a lot of us to go in search of our fortunes in the property market. The boom in technology stocks simply transferred to property. Combined with a low interest rate environment people now had the means and motivation to pursue their dreams and for a lot of people this has turned into nightmares.

What these books did not tell you about was the hard work and risk that was involved in property or indeed in pursuing your dreams. The books led people to believe that it was simply a case of “build it and they will come” or more like “buy it and they will rent”. In a lot of cases this didn’t happen. I know of people who bought rental property at the height of the boom and are still having difficulty renting them out. They are faced with the situation of paying two mortgages a month. They too were seduced by the talk of easy profits and the supposed fast track to wealth.

Aside from the financial self help books that were glamorizing the property market and the fortunes to be made there were other self help books that persuaded people to be easy with their credit. The key thing about self help books is that they promise you the world and when they didn’t deliver people went out and bought the world they wanted anyway…on credit.

Who is to blame? Is it the authors of the self help books who claimed that they could help you or is it the person who buys the books, tries the techniques, fails and buys their dream on credit? To be honest I think both parties get something out of this relationship. For the author the obvious reward is monetary for the reader the reward is that warm fuzzy feeling that yes some day my dreams will come true.

Unfortunately for most readers of self help books their dreams do not come true. Why? I really don’t know, maybe its lack of commitment or maybe it’s because people knew that if they really wanted a house on the hill they could have gone to their nearest friendly mortgage broker and got a nice big mortgage to buy it.

Self help books sold you the dream. They made you write down in detail all the material goods that you wanted. They made you write wish lists. And you know what? The universe delivered you the things on your wish lists. How? With a little help from your plastic friend of course but that’s not the point is it? The universe still delivered. The live for the moment brigade got what they wanted.

As I said at the start of the article I like self help books, especially the financial ones. There are some really good ones out there. At the same time if you believe all the hype contained in them you are likely to be very disappointed. While self help books can point you in the right direction it is ultimately up to you to travel that road. The thing is it is generally a road that is a lot longer than the books would have you believe. This is something you need to be aware of. There are no short cuts, no get rich quick schemes. You could buy your dream on credit I suppose but you will end up paying for it the rest of your life.

In debt? Your banks don’t care about you

Apr 212008

The banks are hurting. The recent meltdown in the subprime has hit their bottom line hard. Do I have much sympathy for them? No, not really but I am concerned about their financial health. Why you may ask? Do I own stocks in the big banks? No. The real reason that I am concerned about the banks is because of you.

You see when the banks feel pain they try to pass the pain on to us. Now some may argue that it was us who got the banks into trouble in the first place by being late with our mortgage payments. My response to that comes in the form of a stack of bank letters that contain offers of loans, credit cards and mortgages dating back a couple of years. These were allsorts of sweetheart deals just to get me to sign up for one of their financial products. If we were the cause of the problem then I would say that it takes two to tango Mister Bankman. You were my best friend two years ago.

Passing on the pain

So interest rates have been cut but the banks don’t seem too eager to pass on the full cuts? Why is that? Well the simple answer is that banks have become so distrustful of each other that they are reluctant to lend to each other let alone lend to me or you. As a result of this credit crunch when the banks do lend to each other they lend at higher rates of interest because they are now a lot more worried about the risk of default. The credit crunch is hitting the bottom line hard. Banks and financial institutions have become more focused on controlling the quality of the customers that they try to sell their products to.

What this means for you

The financial pain being felt by the banks has wide implications for you. Even if you have an impeccable credit history with very little or no debt and a good income the banks will still be reluctant to lend to you. This means that if you want to get a mortgage you will have to jump through a lot of financial hoops to get it.

It’s nothing personal – it never is with the banks. You are simply just another number to them. They have their computer models that determine whether or not you are creditworthy. If the computer says you are creditworthy then great, if the computer says you are uncreditworthy then you get cut. It’s as simple as that. However in recent years the models that the banks have used seem to have been thrown out the window. People who clearly had very little means to repay their mortgages were give large sums of money to buy houses with. When these people eventually stopped paying the banks woke up and started to re-evaluate the way they lent money. A little too late I might add.

Since the bank looks at you not as a person of ability but instead as a set of numbers it is time for you to start thinking in a similar way. If you want to be financially successful and rid yourself of the burden of debt then you need to start looking at your financial life as a set of numbers. The key numbers in your financial life will be

1. Your credit score

2. Your income

3. Your total credit card debt

4. The number of years until you plan to retire

5. Your overdraft

6. The amount and number of outstanding loans

7. Your mortgage and how many years are left on it

By reducing your financial life to a set of numbers you begin to speak the same language as the bank. No matter how emotional your appeals to the bank are in relation to your debt situation they will fall on deaf ears. The reason why they will fall on deaf ears is because you are not speaking the same language as the bank. As soon as you start speaking the same language as the bank things will start to open up for you.

You need to see things from the banks perspective. They have automated all their lending decisions based on your credit score which in turn is based on your credit history. To get ahead and get on with the bank you need to keep on top of all the key financial numbers in your life.

Debt Free – Starting from where you are

Apr 072008

Do you really have a problem with Debt? The simplest rule of thumb to decide if you do is to take the stress test. The stress test is simply this – when the word ‘Debt’ is mentioned in general conversations do you feel your level of stress increasing? If yes then read on – if no then I suggest you find out why you are on this website but not yet stressed about your debts.

The real problem with Debt is that it’s not a sudden thing. It’s more a case of the frog being slowly boiled to debt in a pot of hot water than being dropped into a boiling pot of water and then jumping straight out. Mortgage aside – I’m sure that if some one said to you when you were fifteen – you are going to grow up into a responsible adult with a mountain of debt you would have said straightaway – no thanks!

Commitment

Ah the C word – yes it’s almost like a marriage. You are effectively married to your debt…until debt do us part. Well the sad fact is that the majority of relationship break ups are caused by financial problems. With Debt you can’t always up and leave the relationship. Yeah sure you could file for bankruptcy but then the shadow of your debt will still follow you around for years to come.

So you are effectively committed to your debts whether you like it or not. That’s the unfortunate reality of the situation. Your creditors have you. They own you.  It’s not nice to hear it being put like that but that is where you are starting from. You are effectively a slave to your debts and to your creditors. Each morning when you go to your ‘Wonderful’ job keep in mind that you are in fact going to work for creditors and they are laughing at you all the way to the bank.

Does this upset you? I sincerely hope it does. The reason why is not because I like making people feel bad but because you can harness the good from these negative emotions.

You have two choices – let the anger and frustration at your situation grow into despair and inaction or you can use your and anger and frustration as energy to push you to tackle your debts.

The cause and effect principle

If you do decide to tackle your debts the actions you take now will have a long term positive effect on your life. If you do nothing and let your debts continue to mount then you will pay the price in the long run.

Pay the price now in terms of discipline and action or pay the price later in terms of despair. Your call.

Debt Management – Anyone for some elephant?

Mar 182008

After finally making the decision to tackle your debts two months later you are wondering why you have made no real significant progress. That mountain of debt you are trying to climb just seems to be getting bigger and bigger. And your goal of debt freedom further and further away.

It’s easy to get caught up with the initial euphoria of starting a new venture. When you finally make the decision to tackle your debts you feel excited and relieved. You feel excited because you feel that you are taking back control of your life. You feel relieved because you know that if you can achieve your goal of paying off your debts then you will be free from the worry that comes with financial burden. From somewhere you get an initial jolt of motivation. It may be a New Year’s resolution or you see how a friend has managed to pay off their debts and you think ‘I can do that’.

You go enthusiastically about researching debt management on the web. You talk to friends and family about how you are going to tackle your debt. You think about how you are going to payoff your debts and how you are going to manage your money. You have a plan.

Now please correct me if I am wrong but your plan is to tackle some of your larger more expensive debt first right? You’ve read all about it on the internet and in the debt management books. Tackle your more expensive debt first. For most people their most expensive debt is their credit cards so they go about trying to pay them off first.

Then what? Then after about three or four weeks the motivation is gone. You’ve made a small dint in your credit card bill but you’ve slipped back into the old routine and get an uncomfortable feeling whenever you think about your debts. You can no longer focus on your debts and the feelings of hopelessness are made worse because you think you have failed and are doomed to a life of debt slavery.

Does this sound familiar? This is a common experience when people set out to achieve big goals. The first wave of enthusiasm and motivation quickly wanes as they try to do too much all at once. Focus is lost easily as people do not see the massive progress they expected. After a while the experience can be soul crushing and people lose all hope. Then the next New Year’s they try it again only to repeat the vicious cycle.

What many people fail to realise is that the timeline that they give themselves is restrictive. In their mind they say “I want to have my debts paid off by this time next year…” whereas in actual fact they may need to give themselves a lot longer.

The approach they take may also be incorrect. They are trying to eat the proverbial elephant whole. I’m sure you’ve heard the clichéd question in relation to goal setting – ‘How do you eat an elephant?’ the answer being ‘one piece at a time’.

So compare the elephant eating approach to the approach that most people take. Can you see the difficulties you’re going to have when you try to eat the whole elephant at once or in your case payoff all your debts in one big flurry of activity?

Now when you think about it logically there has got to be a better approach to debt management than the all or nothing approach that most people seem to take. The truth is there is a much simpler and more effective method. The thing is this approach goes against conventional wisdom (the best ones usually do) and you are unlikely to read about it in the debt management magazines.

The standard debt management advice is “Pay off your high interest debts first”. In an ideal world this makes sense as these types of debt are the most expensive and are costing you money. In the long run you will end up paying a lot more for them especially credit cards. Unfortunately we do not live in an ideal world, its taken lack of self control and years of overspending for you to get into this situation. To get out of this situation you need to pace yourself and rock out of it gently.

Discipline is like a muscle. The discipline you need to pay off your debts is no different. You just need to think of it as a debt free muscle. Now if I wanted to be a bodybuilder how would I build up my muscles? Would I go to the heaviest weight and start trying to train with it? No I’d get the smallest weight that I could and I would train my muscles to gradually use heavier weights. The whole idea behind weight training is to work your way up to using heavier weights and by default your muscles will respond and grow.

Now apply this logic to the debts you currently face. From a discipline point of view it makes no sense to tackle the biggest debt first. It’s not sustainable. If you do and make very little progress then you will become disheartened and the self flagellation will begin. The ideal way to start paying off your debts is to start small.

Think of paying off your debts starting with the small ones the same way you would think about a small snowball starting down the mountain. In a short time the snowball has grown into a much larger ball of snow and eventually it turns into an avalanche. It is the same principle of momentum that you should apply to tackling your debts. Build the momentum. Start small, your phone bill, electricity bill. Knock out your debts one by one starting with the smallest. The key here is that the good feelings you will have from paying off the small debts will act as a motivating factor to help you tackle your larger debts. You will build on your success and success in paying off your debts is exactly what we are after.

Like an out of control freight train once you build up a significant momentum you will be unstoppable when it comes to tackling your debts. The great thing about paying off your small debts first is that allows you to not only build up the internal discipline of paying your debts off but it also lets you get a great understanding of how to manage your money.

Think about it another way. Which is better? To have a crazy burst of enthusiasm about tackling your debts and last about two months and make very little impact on your debt burden. Or take a much more measured approach starting small, having a clear long term plan and building up the self discipline that will serve you a lifetime? I know which one I would prefer.

Simply put when tackling your debts you have to be your own best friend. Don’t be too hard on yourself. Debt is an emotional issue. Money for most people brings with it incredible baggage. Instead of seeing money for what it is – a means of exchange – people see it as a way of carving out their place on this earth through buying crap that they do no need. You need to give yourself time, time that will pass anyway. It’s better to settle in for the long haul than to face a life of short attempts to tackle the problem. When it comes to your debt you need to get serious about getting serious.

The Sum Total of your Debts

Mar 042008

In relation to your debts this is probably the most difficult thing that you will have to do. If your debts have become so out of control that you try to ignore them then this will be especially difficult. A lot of the reason why debt can be so intimidating is because we do not have a clear picture, however ugly, of the sum total of our debts. If you want to make changes and begin repaying your debts you need to know exactly what you owe.

The worst thing that you can do – and most people with serious debt do it – is to hide from the problem. Your debt problem will not go away unless you take direct affirmative action. To do this you need to feel empowered to take control before you can start back on the road to financial freedom. In order to put yourself in a position of power you need to know exactly what you are dealing with. You need to take a long hard look at your financial situation.

Don’t know where to start?

This is a very common problem. It’s probably taken you years to get to this point; the Debt by Stealth phenomenon has taken hold of your life. It starts small, a loan here a credit card there and then it grows into an uncontrollable beast. Not knowing where to start can be caused by the feeling of being overwhelmed by the past. The guilt associated with past mistakes and errors in judgements handicap us as we try to make amends in the present.

You need to forget about the past, we are dealing with the here and now. Let’s be clear about one thing there is absolutely no value to be had by worrying about how you came to be in your current financial situation, none whatsoever. If there was value in wallowing in regret then we would all be millionaires.

Forget about the past – we can only deal with the here and now and the actions that we take in the here and now are gonna help make a brighter and richer tomorrow.

Back to the debt list. Take out a pen and paper and start writing. Simply begin writing a list of things that you think you owe money on and the amount you think that you owe. Leave no stone unturned. Be creative!

Here’s an example:

Student loan                                           5000

Credit card                                            11000

Car loan                                                 6400

Phone                                                     200

Electricity                                                300

Cable TV                                                 100

My brother Tim                                       4500

My Mum                                                  320

Back tax                                                1300

Parking fines                                            250

Now for the tough part, for each item on your list find one piece of hard up-to-date information (a bill or statement) that either backs up or contradicts the figure you initially put down.

This exercise serves two purposes. The first one is to give you a reality check. Most people either grossly over estimate or grossly underestimate what they owe. There is no point in kidding yourself – where’s the value in that? In the end it’s you who will pay the price either financially or emotionally or both!

The second purpose is that it forces you to get organised. Once the exercise is completed you will have the latest information in relation to your debts. This can serve as a starting point for your climb out of debt. Here you have a full list, along with back up documentation as to your exact debt situation.

The ugly truth about your debt.

So you owe a fortune? So what? Are you going to let your guilt and fear paralyse you? Are you going to sit there and take a beating from your debts? The simple fact of the matter is this – you managed to get yourself into this situation but you can also manage to get yourself out of this situation. The only way out of this situation is through it.

It’s going to be a very slow process. You have to be in it for the long haul. The goal of freedom from your debts is yours if you want it but you must really want it. The future can go one of two ways for you. A future filled with hope and freedom and excitement as you rise up to the challenge of your debts or a future that is dominated by the dark spectre of your debts, never managing to get out of the cycle of ever increasing debt and eventual bankruptcy. The choice is yours.

Debt and Clutter – one solution for both

Feb 092008

If debt has taken hold of your life and you just can’t seem to see a way out then it might be time for drastic action.

Do you feel stressed when you get home and are confronted by clutter? Do feel like the walls are coming in on you? The thing is you probably have too much stuff. Things like too much clothes, too many shoes, too many magazines and too many gadgets.

I have often found myself wanting to scream from the top of my voice, “Why do we need all this stuff?” I don’t know where the line between buying something we actually need and just buying something for the sake of it began to blur. It’s almost like we sleep walk into buying stuff that is completely unnecessary. Help!!!! I’m actually getting a little stressed even thinking about it. How often have you gone to the ATM, taken out $50 gone to buy some essentials and then realising that you have about $7 when you get home? When you try to piece together where the money went you realise that you spent most of it on unnecessary items such as magazines or lottery tickets.

The feeling of regret this brings when you realise that the enjoyment and value that these items bring are very short lived. Sometimes they actually bring negative value for example soda will eventually rot your teeth so in the long run you will pay a lot more in dental costs than the initial cost of the can of soda.

Clutter on a grand scale

An old friend from college recently got in touch with me. It was great to hear from him. The one thing I remember most about him was that he was a pack rat and a very messy individual. I would dread going around to his apartment because I would have to fight with the half eaten pizzas and beer bottles for a place on his sofa. He also had lots of stuff – things like lava lamps and dozens of magazines scattered about randomly. I passed it off as the typical student lifestyle – one from which my own was not too far removed.

Anyway a lot had happened to him in the last couple of years. One major event was that there was a fire in his house about two years ago. He lost almost everything he owned.

My heart went out to him as he explained what had happened. Anything that did survive the fire was too badly smoked damaged to keep. While he had insurance the amount he received for the lost items was nowhere near what he paid from them. He would find it very difficult to replace all the lost stuff. But then he said something that stunned me and when I think about it makes perfect sense.

He said that there was one huge positive from all of this.

All the stuff that he lost was just that – stuff! old magazines, books, DVDs, computer games etc.  He had been meaning to throw out all the stuff for years and in one fell swoop had it done for him. He said that he felt an immense sense of freedom. Yes initially he said he was devastated from having lost so much of his stuff and indeed there were personal items of sentimental value that he lost but when he stepped back on got perspective on the situation he found that.

I’m lucky to be alive and able to create new photos with my friends and family.

I’m free of all the clutter in my home life that was like an oppressive weight around my neck.

Is that attitude too much like Pollyanna’s? I don’t think so. Ok it’s true that the fire was a traumatic experience and thankfully no one was injured but every cloud has a silver lining. My friend had been set free from all his clutter.

You see the problem was that the clutter was not only messing up his home it also came with a lot of emotional baggage. My friend told me that he would look around his house and he would get very stressed as he did not have the motivation or focus to clear out the clutter. The clutter was effectively crowding him out of his home!

Two years later and he is a changed man. He vowed not to let clutter take over his life again and he is winning the battle. His clean minimalist house almost puts me to shame. He explained to me that he now feels about 100 times freer than he did when he had all that clutter.

So how does all this help you with your debt situation?

Now I’m not for one minute suggesting that you go all Backdraft on your stuff and burn your house down. The 10 years in prison would make the whole process very expensive and lord knows we are in enough debt already without having to pay our debt to society with jail time. Ok so arson is ruled out. What next? Simple really…eBay!

My advice is that you sell everything in your life that is not an absolute necessity. Everything. You need to be ruthless.

The biggest problem is not the physical act of taking photos and putting them on eBay then sending the item to the buyer. No the biggest problem that you are going to have is to overcome the emotional attachment that you have to this stuff. It will take time but once you commit to it you have to see it through because now you are presented with a great opportunity to solve two problems at once.

Two problems solved in one go:

Problem one: The mayhem that you call home.By decluttering and selling all the excess clutter that you do not need you are creating a clean and clear living space for you and your family. No longer will you have to worry about what you friends will think when you invite them over for coffee.

Have you ever seen those house makeover shows that show the before and after pictures of someone’s house? From what I see the biggest problem in most of these houses is the clutter. Sure the décor could do with updating but the majority of them seem to be so cluttered. The solution is obvious really – get rid of the clutter.

Problem two: That debt burden that is weighing you down.

So having read about clutter you may be asking what on earth has this got to do with my debt and how will it help me solve it? Well the benefit of clearing out the clutter is that you will get a much needed cash injection from the sale of your items on eBay. Ok this will take time but its going to take you time to pay off your debts anyway and this is a piece of very simple action that you can take to help you tackle your debts.

When you sell an item on eBay the chances are that you are not going to get what you paid for it. Do not let this logic stop you from selling your clutter. The way you have to think about it is ‘How much is it costing me to keep this item?’ The costs of keeping an item come in a number of varied ways but the primary one is emotional. Each day when you return home from work you are constantly reminded what you have spent your money on and that you are in debt. So I say clear it all out.

Why eBay? It doesn’t have to be eBay. It can be any marketplace where you feel that you will get a fair price for your clutter. I use eBay as an example because it is one of the biggest marketplaces in the world.

Strip your home life down to the bare essentials, cut away the excess. Sure it’s going to be tough emotionally because like your debts this clutter has taken time to build up. Above all else and even if you take no action after reading this article I want you to see the causal relationship between the clutter in your house and the debts that you owe. The chances are you incurred a significant part of your debt by buying things that at the time you thought you needed but in retrospect they were not needed at all.

Like paying off your debts, clearing out the clutter will take time. Give it time. Give it as long as it takes. You want to build a better brighter future for you and your family? Then act now.

Debt Management Budgets – A waste of time?

Feb 032008

How often have you heard that the first thing you need to do in Debt management is to make a budget? I don’t necessarily agree. In fact in a lot of cases creating a debt management budget can be a complete waste of time.

So you want to tackle your debts. Great – this is a fantastic step forward in that you acknowledge that there is a problem.

For someone who is offering their services as a financial advisor one of the easiest things in the world for them to do is to give you a budget. They have a template budget that they fill in your numbers into. You have ‘X’ income and ‘Y’ Expenses. You have a free cash flow of (X-Y) that you can put towards paying off your debts. Then they go on to give you a money saving tip sheet, The tip sheet includes things like – shop around for the best offer, rent out a room; file your taxes on time etc. This is all very commendable stuff and indeed some of it may prove to be useful but there is one fundamental problem with this whole process. That problem is YOU!

The core of the problem is that you are not a robot. If you were then that budget and tip sheet would work amazingly well if you had a computer program for a brain. All the budget rules and money saving tips could be programme into your brain. If this were the case your debt problem would solve itself in a matter of time. Your debt problem would have been caused by the result of faulty programming.

The thing is you are human. Your logic is ruled by your emotion and it is not possible to change your debt situation without changing your emotions. You see if it were simply a case of dishing out Budgets and Tip sheets to everyone then there would be no debt problems. The emotions people attach to money can be crazy – and I’m not excluding myself here, money is the root of all evil, to go after money is to be greedy, greed is good etc.

With such crazy and widely different views on money is it any wonder that people have confusing and conflicting emotions when it comes to money? Now apply this to you debt situation. How are you supposed to move in the direction of your goal of financial freedom when all this time you have been accumulating debt? There is no simple switch that can change your course overnight. When it comes to debt it doesn’t work that way and no amount of fancy budgets are going to change that.

So how do you do it?

To make the budget effective you need to change how you relate to money. Up to this point you may have had a ‘live for the moment’ attitude but have now realised that this is not sustainable from a long-term perspective. The banks usually catch up with you.

To change your attitude towards money you need to change the way you think about it. The big danger is that if you let your debts take over every thought that you have you will turn what is essentially an inanimate object – money – into something that has a life of its own and is about to take control of your life. Okay the fact that you are reading this article indicates that debt has become such a significant part of your life that you felt compelled to search for information about it on the internet. This is a good and bad thing, bad in that your debt is at such a stage but good because it shows that you are willing to take action – however small – to rectify the problem.

You have got to remember you are not going to change the spending habits of a lifetime over night. Before your budget will ever become effective you need to change. How do you change? One of the simplest and most effective ways to change how you relate to money is to use NLP.

NLP is short for Neuro-linguistic programming. It consists of a number of different psychological techniques that allow you to shape your attitudes and beliefs about anything. It is this flexibility that will allow you to use it to change your attitude towards money. NLP is just one of a number of techniques you can use. The time you spend researching how to change your attitudes and beliefs about money will pay serious dividends in the years to come.

The alternative to not changing your attitude towards money goes something like this.

You have debts that you need to repay. You have ignored them until now but the pressure from your creditors has become so intense that you can not afford to ignore them any longer. Faced with some tough decisions – either go bankrupt or somehow raise the funds to pay off your debt. You manage to raise the funds to repay your debts you either consolidate your debts or borrow from a family member or sell your car.

Problem solved or so you think. The real problem began with the spending habits that you have developed over the years and these spending habits are going to be hard to control once you think the debt danger has passed.

The only long-term viable solution is to get at the root of your debt problem which is to tackle your attitude towards money and your spending habits. If you combine a determination on your part to tackle your attitude towards money with a good workable budget then is no reason why you will not succeed in clearing your debts for good.

So when you decide to make a change and tackle your debts the best approach is going to be a two pronged attack. The first prong is that you are going to research as much as possible about NLP and techniques that change your beliefs on the internet. The second prong is going to be that you research how to create the best budget possible for your situation and also you compile a list of money saving tips that will apply to your situation.

So in answer to the question ‘Are Debt management budgets a waste of time?’ the answer is No. However, for them to be really effective they need to be backed up with a change in attitude of the person who is using them.

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