Debt is becoming an all-too-common epidemic around the world. Just fifty years ago you would be hard-pressed to find anyone with any kind of interest-charging debt, but the rules have loosened and people became very reliant on cheap credit during the boom years. Even people who traditionally would have been denied credit because of their poor finances found it relatively easy to borrow money, became dependent on that credit, and now find themselves drowning in debt with no access to further credit to help them.
One piece of advice always given to those seeking to climb out of debt or avoid getting into debt is to “live within your means.” The problem is, most people believe they are already living within their means. Debt to them is a magical occurrence; they can’t explain it. They don’t feel like they live an outsize lifestyle. Everything seems perfectly normal to them, yet their debt is always a problem. How can this be?
The fact is, people, don’t really understand two essential concepts: One is the actual definition of “your means” and the other is just how lavish their lifestyle is.
What Means Mean
For a lot of folks, their “means” is whatever they can afford. By this definition, if you were able to buy something, it was within your means. This is where most people get into trouble.
First and foremost, living within your means requires that you do not borrow money. If you’re borrowing money, even in the form of a common credit card, you are living beyond your means, plain and simple. To live within your means, you have to pay for everything in cash or a cash equivalent like a debit card. Any form of debt is a clear indication that you’re living beyond your means, so don’t kid yourself. If you’re seeking to reduce your debt, you have to take your income, subtract the required payments to utilities, groceries, taxes, etc., and whatever is left over is your budget for everything else.
What’s Really Necessary
The other problem is in lifestyle expectations. Often what happens is that people assume that the money they spend on shelter, food, and entertainment is perfectly normal, necessary, and cannot be changed without negatively impacting their life. But this is almost never the case: Your grocery budget more than likely contains many unnecessary items that you simply do not need, or inefficiencies such as not paying attention to expiration dates, not pursuing sale items, or not using coupons. Whatever your grocery budget is, chances are you could cut it down by quite a bit by taking a realistic look at what you’re buying and how you’re consuming it.
Some people assume that the home they own and struggle to pay for is a fact of life, but why can’t you live in a smaller home, in a different neighborhood? You have full control over these aspects of your life. The money you are spending on shelter is not a fixed amount forever you can take action to reduce it, and the first step is identifying the things in your life that are necessary. A roof over your head is necessary. Three thousand square feet with a pool may not be, strictly speaking, necessary.
The key here is recognizing that your expenditure is your decision. Debt and money trouble do not afflict us randomly, like a disease, but as the consequences of actions and decisions. To alter your debt landscape, the first thing to do is analyze your means and assumptions with a critical eye and then take steps to bring the latter more in line with the former.
Mark Quigley is the owner and director of Darcey Quigley, an independently owned debt recovery company based in the UK specializing in commercial and international debt recovery.
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