8/6/2013 8:30 PM ET|
Why debt is the symptom, not the problem
Racking up lots of debt says more about you than it does your finances. Changing your personal habits will help you understand -- and defeat -- your debt.
Are you tired of having credit card bills? Do you wish you could get out of debt once and for all?
If you want get out of debt permanently, first consider this: Debt is not a financial problem. Hard to believe, but true.
Debt is actually a personal problem that masquerades in financial clothing. That is why so many people have persistent problems with debt. They look outward for financial solutions when the true solution is found by looking inward.
Planning a permanent debt solution
Defining your debt problem correctly is critical to solving it.
That is where most debtors run into trouble. They mistakenly define debt as a financial problem and develop financial solutions. That is why their debt returns shortly after paying it off. They fail to identify the root cause of debt opening the door to repeating the vicious cycle.
For a debt solution to be effective your plan of attack needs to be based on principles that actually work. Unfortunately, when you just pay off your balances you relieve the pain but the underlying condition that put you in debt in the first place still lurks under the surface, ready to return.
Let's face it, the real causes of overspending are your personal habits and attitudes. In other words, the true solution is personal -- not financial. That is a key, and understanding this principle is what will make or break your success in slaying the debt monster for good.
Masking the problem
When you get a headache what is the logical response? You reach to the medicine cabinet for immediate pain relief. Unfortunately, the various pills do nothing to cure the underlying disease: they merely treat the symptom. The cause could be excessive stress, brain cancer, dehydration, eye strain, or any number of other issues. By taking a pill you've treated the symptom -- not the underlying cause.
The same is true with debt. Everyone knows they need to make more and spend less to solve their debt problems. So they pursue financially driven solutions to relieve financial symptoms. It seems logical on the surface.
Whether you choose to consolidate your credit card debt to lower interest rates or you choose any of the quick-payoff strategies (inheritance, gift, sell an asset, bankruptcy, home equity line of credit, or refinancing), the reality is you are treating the symptom and not creating a lasting cure.
Your financial problems are merely the accumulated reflection of the many small financial mistakes you are making on a daily basis -- often without knowing any better. That's why teaching a debtor to spend less and earn more is like telling someone to lose weight by eating less and exercising more. Everyone already knows that is the answer. The difficult part is not knowing what to do, but actually getting it done. The solution lies in your daily habits and attitudes.
I first discovered this approach to debt recovery in my work as a money coach. I started out making the same mistakes as everyone else. I thought debt problems were financial so I coached my clients to financial solutions. The lackluster results proved it was the wrong approach.
The breakthrough came when I noticed my wealthy clients had mirror opposite attitudes and behaviors compared to my get-out-of-debt clients. For example:
- My wealthy clients viewed their financial situation from a position of self-responsibility whereas my debt clients were victims of their finances.
- My wealthy clients planned their finances but my debt clients had no plan.
- My wealthy clients organized their plans around delayed gratification whereas my debt clients pursued instant gratification.
- My wealthy clients associated their self-worth with intrinsic values and my debt clients associated self-worth with extrinsic stuff.
These are just 4 examples from a long list of opposing traits. They are guidelines or tendencies that generally hold true. While there may be personal variation, on the whole the patterns were unmistakable. These mirror opposite attitudes produced mirror opposite financial results in life.
Amazingly, when I applied these principles by coaching habitudes instead of specific financial actions the debt problems solved themselves over time.
This is obvious when you think about it. Your daily financial decisions result from your habits and attitudes that drive those decisions. For example, consider the following choices and their obvious financial implications:
- Do you buy fancy coffees throughout the day or do you make a pot of your favorite coffee in the morning and bring it with you?
- Do you lease a new car every few years or maintain your reliable used car?
- Do you dine out frequently or cook healthy meals at home?
- Are you a minimalist or do you desire the latest designer fashions?
- Do you shop to get what you need or do you shop for pleasure and recreation?
When you focus on financial solutions you treat the symptom instead of the cause. When you focus on your attitudes and habits, you focus on the cause and the symptom takes care of itself automatically and without any self-discipline.
Let me be clear -- this isn't a quick fix. The results you produce from this approach will occur gradually over time. Just as it took time to accumulate the debt it takes time to unwind it when you work with root causes.
However, the solutions are as permanent as the new attitudes and habits you adopt -- and that makes all the difference.
The truth is the financial results of your life aren't dependent upon how much money you make. Instead, they depend on how well you manage the money you already have. This article series will show you the easiest way to adopt wealthy habits and attitudes and be smarter with your money so that you can get out of debt -- permanently.
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Wow! A money section article on MSN that actually gets it right! The author here nailed it I'd say.
The four bullet points made under the Money Breakthroughs heading are so true. All the people I know who are head over heals in debt have no sense of delayed gratification, are stupidly materialistic, have to keep up with the Jones', or worse, they want to BE the Jones', have little in the way of a solid retirement plan and don't save much in general. They have to have vacations now, new and trendy clothes, second homes, the latest techno gadgets, golf and health club memberships, eat out a lot , newer nice vehicles, spoiled kids in any activity they want no matter how expensive,......I could go on and on and on. You get the point. The funny thing is they don't think others have them figured out.
I had a friend, an interior designer, who was desperately frustrated that her wealthier clients were so "cheap."
"If I was rich like them," she would moan (or shriek!) "I'd buy everything my designer told me to!"
"If they bought everything you told them to buy, they wouldn't be rich any more," I pointed out, and realized at that moment exactly the difference between rich and poor. The rich never spend it all; the poor spend it all.
Yes, the results, the accumulation takes time...but eventually, there it is.
I applied my own insight and am, frankly, amazed today at what a silly little dog can do by being careful.
Delayed gratification...and then there's the "pleasure vs fulfillment" factor, as well. The rich buy a nice (whatever) and keep it until it rots. The poor seem to need a new (whatever) of the latest color/fashion/style/doodads all the time.
Great article. I'm printing it out and seeing if I can revise it to address overweight.
As a pug, I'm prone.
I've been saying this to my clients for a while now- pay down your debt now while you can manage it. Just because rates are low does not translate into your long term(1-3 yrs) ability to pay it back. With unsecured debt (credit cards), you need to be able to AT LEAST pay the amount that will get your balance to 0.00 in 3 years (credit card companies now provide the amount on their monthly statements for this), not only the minimum payment.
Once you've accomplished your goal, You should ask yourself every time you pull that card out, "Do I really need this & to put it on the card"? Or can I at least pay cash for it ? Once you get into the habit of going through this 'exercise' when you make purchases, you've started to address your own spending behavior rather than looking at it as a financial problem.
My Great Uncle Art was a millionaire, served as a Supreme Court Judge in CA, invested in the stock market, and left behind a portfolio of negotiable bonds the size of a NYC phone book at his death. However, in life he lived as a stingy, old miser who wore the same pair of shoes until the soles were gone, lived in a dinky home with plastic over the furniture that he and his wife bought in the 30s. He lived like he was poor while hiding his money away. Left it all to his weasel of a brother who made himself and his sons wealthy spendthrifts.
Moral of the post: do something productive if you have money; and if you don't then suck it up and don't try to live like you do have money; and if you inherit the money of a stingy miser then you are truly a lucky bastard.
I have always been good at managing my money. I learned from my mom and dad. When my siblings and I were young my mom stayed home and my dad worked. When we grew older mom went back to work. At a young age I saw my parents manage their finances together. They would sit down at the kitchen table with their check book, bills, and bank statements. They pay their debts and put money in a saving account if they had any left over.
They had a rainy day account for unexpected events which came in handy when my father lost his job and had to start over. My parents hated debt and lived within their means. My parents were children of the depression and that effected how they invested their money. They invested in CD’s, checking and savings accounts. They had small IRA’s and had little money invested in stocks and bonds. My parents paid off their mortgage when they were young and they waited until they were in their seventies before they both retired. The both live comfortable and have no worries about their savings and have no debt.
When I was young I too invested in CD’s, savings and checking accounts. The interest rates were a lot higher when I was in my twenties and I was making good income on my investment. As I grew older, I started investing in stocks, bonds, mutual funds, real estate, and other financial instruments. I did and I am doing very well with my investments. Learning from my parents I stood out of debt, live frugally, and have a rainy day fund for emergencies. I am on track to have a very comfortable retirement.
My younger brother started a family early and he had to learn how save and keep to a budget. His wife and he live within their means. They stood out of debt and helped their four children with their college expenses. My brother listened to my advice on investing and learned to invest for himself and his family. His wife and he are on track for their retirement needs.
My younger sisters on the other hand are terrible with their finances. My one sister has had a very good job for years and makes a good salary. Her nature is to spend the money just as fast as she makes it. She is generous with her friends and has a good heart but has never been disciplined with her finances or her spending habits.
My parents and I have assisted both of my sisters with their debts and bailed them out when they needed help. They have never learned to live within their means and save for a rainy day. I offered both of my sisters my help with creating a budget so they can save, invest, and have a financially sound retirement. Neither one of them has taken me up on my offer. Although, my one sister let me help her with her companies 401K plan so maybe she is starting to learn.
My parents were tougher on me because I was the oldest sibling and maybe that is one reason why am good with my finances. I was always told I had to set an example. On the other hand, my siblings and I all saw how my parents had to sacrifice for our needs, and how hard they worked, and what it took to manage their household and their finances. It was an easy lesson for me. You work hard; you live within your means and stay out of debt, invest wisely, and have a rainy day fund. If you do that you stay out of financial trouble. Lesson learned.
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