Redefining Debt

August 6, 2013

By Tania Pellew Brown, CFP®

Relationship Manager

Financial Planning Specialist

Morgan Stanley Wealth Management

I've had the pleasure of helping people navigate through their transitions in life for more than 16 years. My passion for what I do started at my job in HR.  I watched people come in everyday who wanted to retire, but could not, due to how they managed their personal finances. Debt was almost always at the center of the problem. This inspired me to become an advisor to help educate people about their finances. As I got older, I took on debt like everyone else, but convinced myself that our family’s income made the debt more than manageable.

Then the bottom fell out. The recession came, both of our incomes dropped dramatically. We were blessed in the mist of this with a new baby. I realized from this experience that the greatest lesson I could possible teach others came through my own experience. I learned to re-define debt:

Debt is leveraging your future on circumstances and events for which you have no control over.

We all plan our finances as if life will not throw us a curve ball. Then when the curve hits us (and our goals) between the eyes, we lament over the curve ball, instead of the fact that we were so burdened by the mountain of debt.

The road to financial recovery for us began with a few steps:

  1. Budgeting (John Maxwell’s definition):  Telling your money where to go instead of wondering where it went. We did a budget of the main bills, but the leak in our finances that was causing our financial ship to sink was eating out, small purchases, and no buffer set aside for the unexpected. We needed to record ALL of our spending.  Find out what method of recording your finances work for you.  Paper and pen works best for me, for some it is the many online tools –, YNAB, etc.
  2. “Parting is such sweet sorrow”: Once we saw how much we were financially leaking and where, we took action. We cut back on just about everything. In the end we realized that the pain of discipline was better than the pain of regret. We were able to apply the “new found” money to pay down our debts. Honestly assess your lifestyle and look at ways to eliminate or at least cut back. One latte a week is better than five. Basic cable is still cheaper than premium. Eating out once every two weeks is still better than every night. That money saved adds up.
  3. Cash is King. Using cash is the best way to stick with a budget. We made the decision to use cash for almost all purchases. There is a pain about using cash that is not felt with a debit or a credit card. Over time Washington, Lincoln, Hamilton, and Jackson became more than historical figures, they became my friends in my wallet. I found that there were very few things I felt were worth giving up my new found friends for.
  4. Find a debt elimination method that works for you. I have had people over the years ask me which one is better, paying off the highest-interest rate or the smallest balance. My answer is always the same: Whichever method will make you take actions is the best method for you.
  5. Starting Savings: Life does not stop because you are paying debt. Kids will still need new clothes, cars will still need repairs, the unexpected will still happen. Learning to save, even if it is a little, is the best way to build the discipline of living below your means.

Most importantly, it takes patience. Your financial situation did not happen overnight, nor will it be resolved overnight. Discipline mixed in with patience and time will yield great results.

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