| Getting the debt monkey off your
back |
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We don't have to go back too far in financial literature
to draw inspiration.
From "Your Money or Your Life," by Joe Dominguez
and Vicki Robin (published in 1992): "Consumption seems to
be our favorite high, our nationally sanctioned addiction, the all-American
form of substance abuse."
From "The Millionaire Mind," by Thomas J.
Stanley (published in 2000): "In 1983 I was asked to interview
60 millionaires from Oklahoma. What I learned from them was simple,
yet the message had a lasting impact on me: You cannot enjoy life
if you are addicted to consumption and the use of credit. These
Oklahoma millionaires were just the opposite. ... Some were credit-dependent
earlier in their careers, but they eventually saw the light. They
went cold turkey, breaking the cycle of borrowing to consume, earning
to consume, and borrowing more and more money. Others never became
addicted to credit or the need to display their success."
Breaking the addiction
Strong words -- addiction, substance abuse, cold turkey -- aptly
describe our national dependence for immediate gratification. For
those with a serious debt affliction, 12-step programs such as Debtors
Anonymous can help get the monkey off their backs.
But for many Americans, debt is less a screeching
monkey and more the incessant bark of a neighbor's dog, disturbing
the psyche nonetheless. Perhaps this is true of your situation:
Each year your finances are improving -- your income and investments
are growing, your net
worth is advancing in the right direction -- yet you carry credit
card debt from one year to the next. Your assets outweigh your liabilities,
but your liabilities never seem to go away.
Maybe most of your assets are in tax-deferred vehicles such as
a 401(k) plan or an IRA that you (wisely) refuse to tap to eliminate
debt. Or maybe you have equity in your home, but (again, wisely)
refuse to access it because your goal is to pay off your first mortgage
rather than incur more debt with a second mortgage.
Sometimes debt is unavoidable -- you may be going through a period
when emergencies arrive one after another, or money is super tight
because you're using income to pay college expenses or payments
to an assisted-living facility for an elderly family member. Things
happen in life, some of which we prepare for and others that we
simply don't.
'Seat-of-the-pants finance'
But many Americans don't plan at all and instead operate their personal
finances spontaneously. I call this "seat-of-the-pants finance."
It's a strategy that doesn't work because it often leaves us with
too much month at the end of the money.
In "Managing Your Own Money" (published in 1979), author
Jerome R. Rosenberg offers this advice for those struggling with
debt: "At the beginning, in order to rearrange your affairs,
you must substantially reduce discretionary spending. In most families
a four-to-six month austerity budget will realign the fiscal priorities
on a more sensible basis."
Add a few months to Rosenberg's time estimate for
that austerity budget if necessary to get rid of debt. Why is it
so important to do this? Because debt hinders our ability to reach
lofty financial goals.
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