The solution is to reverse the equation: Instead of spending more than you earn, start earning more than you spend. Put the difference against your debt regularly and soon it will be gone; continue stashing away the difference and soon you’ll have considerable savings on which you could retire and live happily ever after.
Who said there is no direct link between maths and happiness!
Here is my problem: Arithmetic, just like any description, is very useful in telling us about the “what.” What is the current state? What is to be done?
However, most action, and change, also needs the “how.” In this case, how do we stop spending more than we earn? My answer to this is: By changing the habits that shape the way in which we manage our money.
Most aspects of our lives, including our finances, are habitual. Habits are what makes our lives possible; sometimes, however, these can become obsolete and hinder our existence rather than enhance our lives.
Being in debt is usually a signal that our money habits have become obsolete. Here are the four basic habits that keep us in debt:
Ignorance, in any area of life, is an affliction that needs to be remedied as speedily and efficiently as possible. Ignorance keeps us in debt in four different ways:
- Ignorance about our personal financial situation prevents us from acting
- Ignorance about money and money management deprives us of choice
- Ignorance of broader economic developments makes it impossible to place our personal financial situation in context, or understand and change it
- Ignorance limits our earning capacity
Who says that ignorance is bliss?
Albert Einstein once said the only thing that interfered with his learning was his education. I agree. So, to deal with the habit of ignorance start learning.
Remember — learning is not a one off act; it happens in all kinds of settings. Get educated:
- Check these financial statements, use technology to link and manage your personal bank accounts
- Educate yourself about the fundamentals of money management
- Develop the personal habits that underpin responsible financial behavior
- Follow what is happening with the economy; remember that the economy is very sensitive to politics
- Develop competencies and skills that will help you get a higher paid job
Change this habit of ignorance and start now — but remember:
- Education is about what you know and can do; a degree is about certification. Go for education!
- Don’t assume education in a particular subject will bring the highest financial returns. For example, top accounting firms rarely recruit people with degrees in accounting; many recruits have degrees in classics, history and philosophy.
Lack of balance
Socrates said that the way to happiness is to observe moderation in all things.Just like in life, financial moderation provides an anchor for balancing our decisions and actions.
Losing our balance with money can easily send us into, and keep us in, debt.
The remedy? Understand the kind of life you want and what do you want in your life. Remember that:
- Money doesn’t make much sense if it doesn’t nourish your life; and
- For a different future you should plan from where you want to be, not from where you are now
Most people make decisions based on emotional judgment, rather than facts. Humans have almost unlimited capacity for self-delusion; which means many of our judgements are really bad. Regarding debt this can be: ‘I’m in debt but I can pay it off at any time.’
One of my all time favorites is: ‘I’ll deal with my debt when I get a raise.’
It doesn’t work like that. People pay their debts off when they decide that they’ve had enough. After that, even the smallest payments help: We had $160,000 worth of debt and, after paying it all off, I noticed our smallest payment was $6.
So become mindful of your assumptions and change them when and if necessary. Experiment rather than assume.
Most people’s lives consist of selected intentions. I know because I was there! And things started changing only after I started acting.
The bottom line
Ignorance, lack of balance, bad judgement and inaction are habits that impair our financial health and keep us in debt. Changing these habits is hard — but it’s so worth it. In all senses of the word!
About the Author: Maria is the blogger behind The Money Principle: a personal finance blog that will make your head hurt and your wallet sing.
Photo Credit: Stock Monkeys