Dealing with debt

I got misquoted recently.  Somebody had taken some things I’d written, quoted the actions I suggested accurately, but then changed the order.
It was for an article about dealing with debt, and they started with making a budget.  Now that sounds like a perfectly reasonable thing to do – after all it is what most “experts” recommend.  But it is wrong, wrong, wrong!
Why is more powerful than how.  So start with the why.
  1. Why do you want the money, what do you want to do – what is the money for, what do the family want to achieve with it?
  2. Given that’s what you want to do (have a holiday, buy the kids a pony, build an extension to have a playroom – whatever) what are the short and medium term goals?
  3. What is the reality of the situation, do the paperwork, what have you got now, how much debt, what regular commitments, what money are you wasting on things you no longer want or need?  That is where you do a budget, you work out where the money is currently going and compare it to what you want to have happening.
  4. Prioritise – you know what you want, so how much do you want it?  Do you want to coach football enough to give up the overtime, do you want to build the extension enough to bother to change energy suppliers, give up cigarettes and start cooking from scratch instead of buying take-aways and ready meals?  That’s where you get your sources of saving money to achieve the goal, and in the process pay off the debts.
  5. Save the money – knowing why you’re doing it, which gives you the incentive to check out the best ISA, etc.


That way round, at each step you have a strong motivation to do all the boring, hard stuff that you aren’t used to.  If you start by doing the boring stuff, like budgeting, you usually give up.  That’s one reason why new year’s resolutions and crash diets don’t usually work, you don’t really prepare or know why you’re doing it, so when the going gets tough, the majority get scared and give up. 
The basic problem with the conventional “save lots of money”, make a budget, use lots of will-power, method is that it relies purely on you doing what you “ought” to do and ignores the psychological difficulty of changing habits.  It also ignores the reality that very few of us do what we know we “ought” to do (from giving up smoking, to eating more vegetables, taking more exercise, being nicer to people and not spending too much as a cure for depression about being in debt!).  That’s why most people stay in debt, don’t keep the weight they lose off, etc. they can’t actually change their habits long term because they lack motivation.
If you try to do it that way you never work out what the money is for, the money is an end in itself and you remain the slave of the money – it is the money that is at the centre and you follow it round like a dog on a lead.
My way gives you the motive to save, so they are more likely to succeed, and you know why you are doing what you are doing (like make a budget, tick off your credit card slips against the bill, etc.).  That puts you and your desires at the centre of things and the money is simply a way to achieve what you want, so the money is your slave.
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