Going “Beyond the Debt Cycle”

Zebert L. BrownThere are several reasons people fall into debt – a job lose, severe illness or series injury, divorce, death of a loved one, poor spending habits or plain old careless with their money.  Regardless of the reason why, the question each person asks once they find themselves in debt is “how do I get out”?

As I read over the various blogs that cover personal financial management, each mentions the following as important first steps towards resolving your debt woes:

  1. Acknowledging that you have a debt problem; and,

  2. Start a budget.

Both are prudent first steps, yet both can be very difficult steps to take.

Most people who find themselves in debt are afraid to admit they’re having difficulty managing their finances properly.  Simply put:  pride gets in the way.  At our core, we don’t want to be viewed as a failure. However, by acknowledging that you need help managing the household finances, you’re seeking the assistance you need to think through financial matters that not only impact yourself but your entire family.  As explain in chapters 1 and 2 of my book (see byline below), your family should be involved in the budgeting process so that everyone understands your household’s financial situation  and helps to keep things on track.  But what if you’re single?  Where should you turn for help?  As mentioned in a previous blogpost, “10 Tips to Improving Your Financial Literacy,” agencies such as Consumer Credit Counseling, your local community college or your bank can all be of assistance.

Acknowledging you’re having difficulty managing your household finances may be easier than drafting and maintaining a budget, however.  The reason most people don’t like living with a budget is  they believe budgets are too restrictive.  I certainly use to think that way.  It wasn’t until my wife and I realized we were starting to miss payments to our creditors and beginning to bounces checks that we realized we needed to do something different about managing our household finances.  As we sat down with our bills, recent bank statements and our cash receipts and began the first rough draft of our budget, we began to see a couple of patterns emerge.  First, we were spending way too much on dining out (for lunch mostly).  Second, we were relying on memory to ensure one of us was paying specific bills on time.  Once we were able to see how negative spending habits and a lack of focus were hurting our bottom line, we were able to draft a well-constructed budget plan that took both our input into account. We also realized that we need to forecast our spending beyond the next paycheck to tackle any unforeseen circumstances that might crop up.  By forecasting our expenditures 3-6 months out, we were able to absorb added short-term expenses without significantly impacting our long-term financial goals.  And that brings me to a broader point concerning your budget:  it’s merely a tool to help you manage your money as you see fit.  Nothing more, nothing less.

Use your budget to help keep track of your earnings, expenditures and long-term financial goals.  I want to emphasize that last part.  I think it’s important for people to understand that your budget shouldn’t be a static document.  I should change as the circumstances of your life changes.  Furthermore, just because you may have to cut back and live within your means (or below them) in order to get your finances on track doesn’t mean you have to always go without.  You can – and should – incorporate leisure time activities into your budget plan. Such activities could be as inexpensive as planning a special family meal once a week or renting your favorite movies including everyone’s favorite snacks.  My point is, such leisure time activities don’t have to be extravagant.  Just plan ahead and be creative again taking input from your family.  Unfortunately, many consumers believe that “keeping up with the Jones’” – image – is more important than living debt-free.  To some, debt is just another part of life.  But I would argue that living debt-free is a better way of life because you’re in control.  Instead of being dictated to as to how to spend your money, you get to call the shots.  And wouldn’t you rather be in control of your financial future than having someone else control it for you?

Another aspect of your budget plan should be personal investments.  While most financial counselors suggest waiting until you’ve gotten your debts under control, I would suggest that you start by putting as much money as you can into an interest-barring savings account  and build up your savings over time when you can afford to save more.  The point here is to pay yourself first!  After all, you work hard for your money.  Shouldn’t you receive the benefit of its use besides just paying bills?

If you’re struggling with debt, take the first steps towards getting out of debt today by acknowledging your debt woes, seeking assistance and drafting well-constructed budget plan.  Try to forecasts your expenditures for the long-term, and don’t forget to include personal investments and leisure time activities into your budget plan.  Your family, your sanity and your financial future will thank you for it.

That’s my blogpost for this week.  Join the discussion and post your comments below.  And don’t forget to tune in next week where I’ll once again share more ways you can break the debt cycle and then go…beyond.

Zebert L. Brown is the author of Break the Debt Cycle in 3 Simple Steps and a 16 year Navy veteran with specialties in administrative management, career development and public relations.  Follow him on Facebook and Twitter.