Why Are You In Debt? (Part 2)
People who are in debt often tell me they don’t really know how it happened. It just did. And it’s remarkable how many people who are making good money still manage to dig themselves a debt hole. If you think you make a reasonable income but are still walking around with a balance on your credit card or your line of credit, or dip into your overdraft, you should ask yourself these three questions:
Do you change your car every couple of years? Once upon a time, we save up for a car, bought it, drove it, took care of it, and didn’t buy another one until the one we had died. Now people change their cars seasonally. I’ve worked with people who change their cars a couple times a year. OMG! And every time they move from car to car they increase their “negative equity” which is the latest euphemism for DEBT!
A car is a means of transportation. Sometimes you need more car (or truck) because of the kind of work you do. Some people like having more car around them for safety reasons – I would never feel save in a smart car because of all the highway driving I have to do. But if you’re buying a new car every year, it may be that a) you’re trying to impress someone, or b) you’re trying to fill a hole in your sense of self. While I know that people judge us by what we wear and what we drive, that’s no reason to give in to those dopes. Anyone who things the clothes you put on your back and the rust bucket you drive has anything to do with who you actually are is a fool and you don’t need to worry about what they think. Sadly, people go broke trying to keep themselves in new model cars. Oy!
Do you rent, or have you bought, way more home than you need? Here’s another of those traps we’ve laid for ourselves and routinely fall into: The bigger my home, the richer I feel. Or the shinier my marble, the better taste I must have, so the better I must be. I worked with one couple who had only just moved into a home they could barely afford when they upgraded on impulse to bigger and better.
Bigger houses come with bigger mortgager payments (and way higher interest costs), higher tax bills, and larger utility bills. Not to mention all the stuff you have to buy to fill up the larger space.
Why do we need to live in such big homes anyway? Remember when small and cozy were enough? Families with lots more children than we have today made do in houses half the size of the homes we’re building now.
When you buy (or rent) bigger than you need, you may be wasting money you could be using to build an emergency fund or a retirement savings plan. If you’ve got all your ducks in a row and want to live in a castle, you go for it baby. But if you don’t have a big fat emergency fund, if you aren’t maxing your retirement savings, and your kids’ educational savings, if you don’t have enough life and disability insurance, that monster home is more debt than it’s worth, and is distracting you from some really important things you should be taking care of.
Do you follow a formal budget? People assume because they’re making “enough” that means they don’t need a budget. Hey, if that were true you wouldn’t be in debt would you? Then there are the folks who say, “Hey, I’ll be making more money, so this isn’t a problem?” Tell that to the folks who are now finding their hours cut or their jobs eliminated because the economy is in the dumper. If you’re delusional enough to believe that because you have a good job your debt isn’t an issue, it’s time to wake up and smell the coffee. And if you think the debt is jus going to disappear without some sweat and maybe even some tears, I’ve got a hanky here with your name on it.
Tune in tomorrow for the three questions you should be asking yourself if you’re in debt and think it’s not your fault.