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.

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.

Gasoline, Groceries and false economies. It’s your call.

May 222008

What do you need to survive? If you are in debt then where do your limited resources go? What should get priority? As always it depends on your particular circumstances but there are a number of key things to consider. If you are going to get out of debt you need to maintain a basic level of existence. You can’t simply turn off everything and sit at home in the dark eating crackers.

Some things you simply cannot function without. The thing you have to ask yourself is that if you reduce or remove something from your lifestyle will it compromise your ability to function? By function I mean your ability to get up and take positive action to reduce your debt. For example if you decide to reduce your grocery budget right down and you end up living on crackers and cheese then you can be sure that in a short time you won’t have the energy to go take any action. This type of logic is what is commonly referred to as a false economy.

Beware of the false economy

In simple terms a false economy can be defined as some action that you think will save you money in short term but in the long run it actually ends up costing you more. Using the example of eating crackers – this will slash your groceries budget to pieces but in the long run you will end up paying more in a number of ways – trips to the doctor’s, missing days at work, general sluggishness – you get the picture.

With any budget you need to be conscious of the fact that you can overdo the cutting. What happens in a lot of cases is that people tend to have an initial wave of motivation and then draw up a budget that is unrealistic and full of false economies. They cut too deeply into the key essentials. After what is usually a very short period of time life becomes uncomfortable and they become disillusioned and wonder why they can’t stick to the budget.

The whole point of a budget is that it is right for you. It should force you to think about your spending choices but it should not be so hard on you that you won’t stick with it.

There are some things that you will need to maintain and you simply cannot and should not compromise on. Some of the obvious ones are food and transport. The price of gas is rocketing? – So what. You need to get to work. So the price of food is also rocketing? – So what. You need to eat. Health insurance gone through the roof? – So What. You might need it some day soon.

In any budget there are things you can cut back on and there are things you shouldn’t cut back on. Those mentioned above are just some examples of the basic things in life that you need. Notice that cable TV is not mentioned? Or are expensive dinners out. You need to make sure that you don’t blur the lines between what is a necessity and what is a luxury. Take the example of gasoline – I said it was important and that you need it for transport but what I didn’t say is that you also need a top of the range SUV for transport too. There are plenty of ways to cut your expenses without compromising on the basics of life.

With this in mind you need to ask yourself if you are cutting in the wrong place?

What is your problem with people in debt?

May 212008

I was browsing the web recently and I came across an article about people in debt. The article outlined all the facts and figures about how we are all doomed. Then I got to the comments section and I couldn’t believe what I was reading. Almost every single comment was in a negative and derogatory tone against the people who were in debt. It was unbelievable. Some of the people’s comments were pure poison.

One such comment went something like this

“Don’t try to educate these fools. Having their homes taken away from them and their lives destroyed will teach them”

I mean come on what is that all about? I was a little shocked to say the least and this got me thinking. Why were these people so angry at people in debt? What motivated them to post such vitriolic comments? 

I think some of these people who posted the comments feel that they lost out during the boom times and for whatever reason feel angry about it now. They seem to want to blame the people who were trying to make a better life for themselves. I’m not denying that there were excesses during the good times – this is always the case. Some people went overboard with the easy credit. But in my opinion the vast majority of people who find themselves in trouble today do so because they were simply seeking a better life. What’s wrong with that? What’s wrong with trying to make extra cash doing something like flipping properties – ok it is highly risky but you got to admire the people who were willing to take those risks. A lot of people got burned but they will be back again doing something different trying to better themselves and improve their lot.

I know people who simply wanted to improve their kid’s education. Give them the best start in life. How can you judge someone who goes into debt for that? How can you judge the college graduate who is up to their eyeball in debt as a result of tuition fees? Man some people can be cruel.

The Germans have a word called “Schadenfreude” which basically means “to take pleasure in someone else’s misfortune”. A sort of “serves them right” mentality. This kind of attitude is wrong and unhelpful. How are we supposed to solve our debt problems with people beating on us?

Amid the negative comments there was one comment that I agreed with. The comment went something like this.

“People need to live by the choices they make and accept responsibility for them”

Yes I couldn’t agree more but just because some makes some bad choices about their finances should they be labelled a fool? These people who have made bad decisions about their finances are paying the price whether they like it or not. Some may lose their homes or have their credit rating ruined – is that not penance enough? Why start the name calling as well?

In the end we are all responsible for our own financial wellbeing and it is only us that can put it right. So what if we make a few mistakes along the way. It’s how we learn. Mocking people who are in debt now is like laughing at someone who has a car crash and saying – you should have learnt how to drive properly. You just don’t do it or at least you shouldn’t because someday that person could be you.

To those people who are in debt and are struggling to get out of it I salute you. Pay no remarks to those little people who are trying to exercise some sort of moral superiority. Simply by trying to do this they show that they don’t have any moral superiority – no one does. Stick with the fight. No matter what happens simply by going through your debt situation you will come out the other side as a stronger person.

There I said it - Personal Finance is boring. But I’m still in debt.

May 202008

Up to this point it may not have mattered. You may have been happy to put your faith and financial future in the hands of that nice man down at the bank. You didn’t need the hassle and if you’re honest filling out forms scares you. Better just take their word for it and sign on the bottom line.

Recently though you’ve become worried and frustrated. Worried that you don’t fully comprehend all this financial speak that is coming at you from every angle and frustrated at the fact that it seems so hard to understand. You may be feeling stupid and that other people seem so much smarter than you when it comes to money. You may even feel helpless and that you are being left behind in the race for a better financial future.

These feelings are a lot more common that most people care to admit. No one wants to be seen as stupid. However financial knowledge is not something you are born with. In most cases financial knowledge comes from hard fought experience. Learning the hard way is not something that I advocate. Learning the hard way means that you must face financial problems in order to overcome them and learn how to deal with them. These situations can be avoided but for many people it is only when they face real financial problems that they begin to learn about personal finance.

The truth is financial education is probably not on the top of everyone’s to do list. There is a good reason for that and in my opinion financial education can be unappealing to most. If I’m honest the thoughts of sitting down and learning about loan rates and credit card debt is not my idea of fun. It can be draining and boring. There’s no two ways about it and no matter how much some of the financial gurus try to dress it up learning about personal finance is boring.

There I said it – Personal finance is boring. You don’t have to feel bad about not wanting to learn about it. The unfortunate thing is that if you don’t learn even the basics of personal finance then you are destined for trouble.

So what can you do to make it interesting? Well I’ve always found that if I you have a vested interested in learning about a subject then you will put more effort in and learn more quickly. What is your vested interested when it comes to your financial education? This should be become clearer when you think about your existing financial situation. If you want your existing financial situation to improve then you need to start investing time and energy in your own financial education.

The amount of money you have in your bank account or the amount of debt you have are not going to change until you change. How do you change? You strive to learn more about personal finance.

Yes I know it will be hard. Yes I know you have very little interest in it. Yes I know you have better things to be doing. What I want you to think about is the long term. Think about your financial future. What do you see? A grey and bleak place where you continue to struggle with your finances?

Here’s an easy way to think about it. Learning as much as you can about personal finance and debt management is the most effective way for you to increase your wealth. For the amount of time and money you invest in your own financial education you will reap massive dividends in the future. The great thing is that the all the information you are looking for is out there on the web and it is for free. The only thing you have to do is invest the time and effort.

Don’t make the mistake of leaving your financial future in the hands of someone else. What makes you think they know more about personal finance than you do?

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