The debt-free system: Part 2: It’s not rocket science
(A tale about balancing the books)
“And don’t tell me debt is not a big deal. Debt will cut off your legs and laugh at you as you grovel in the dirt begging for mercy. If you don’t need it, don’t get it. If you can’t afford it, don’t get it. If you’re already in debt, get out quickly. If you think you’ll never get out, you’re right, you won’t.”
So what’s the plan? Some people like to take a crash debt approach, but just like the approach of it’s sister plan, the crash diet, this method may start off well, dropping a couple of dress sizes in the first few weeks (or thousands of £s in the case of debt) but more often than not it’s not long before they’re back on the same old consumerism bandwagon that they’d been on just weeks before. Downsizing your house or car, selling off important assets, taking on a second job to create additional income in order to clear a debt is an almost pointless exercise if you’re yet to have tackled the root of your financial problems, overspending and over-consumption.
Just as it is that an overweight person has grown to be obese by simply having consumed more calories than they’ve burnt off, although not quite so obvious, most people’s financial position are of a similar simple equation. Debt is often created by people from having continually, for many years, spent more than they had earnt, only for them to wake up one morning, in the cold light of the day, and realise the terrible state of affairs they are actually in.
Balancing the books is one of the key accomplishments in a journey to becoming debt-free and its value is not only in the financial sense of the word but also in the motivational sense of achieving this milestone. It’s the moment of realisation when you know you are capable of doing this and that from now on, probably for the first time in years, the only way is debt reduction (as opposed to debt creation).
To make a hot air balloon rise you have two options, you can either add more gas or lose some weight, it is a similar situation if you’re trying to improve your financial position, there are two potential options; one is to increase income (the money which comes into your bank), the other being to reduce fixed costs (the costs that you have to pay for at the end of each month)….or better still try doing both!
Whilst reducing some of your outgoings comes hand-in-hand with becoming a minimalist, wiping the slate clean by cancelling expensive, income-sapping gym memberships, magazine subscriptions etc, there are also the unavoidable costs (mortgages, electricity, home insurance etc..) which you can, over time, reduce to a bare minimum.If you want to delve a little further into reducing your outgoings then check out my articles ‘Look after the pennies and the pounds will look after you!’ and ‘Whatever happened to the idea of a 15 hour week?’.
For most wage-slaves (like me), increasing your income, especially in the age of 4 year public sector pay freezes, 40+ hour working weeks and continuing austerity, is an uphill challenge, but definitely not impossible. Increasing income can conjure up images of taking on second jobs, working late nights in a supermarket filling shelves, but for me this option’s opportunity costs, leaving little time for the important things in life/additional stress, far outweigh the benefits which the additional income would bring (especially after the state get their share of it!).
However there are other ways, smarter ways to earn money. By moving current accounts this year (single accounts with Halifax, joint account with Santander) I created an instant income of £400 (switching bonus) whilst in the long term these accounts bring in an additional £300 p.a. through a combination of cash-back (Santander 1-2-3) and rewards (Halifax Reward Current Account). Using cashback websites (Quidco) for insurance cover, mobile phone contracts, swapping utilities and buying birthday presents has reaped a handsome £400 this year whilst using a credit card (Aqua Cashback/Tesco Credit Card) for purchases (just make sure you clear the balance), big and small, has netted, through a mixture of cashback, rewards and additional time for money in the bank to earn interest, a useful £200. Check out ‘marginal gains’ for a comprehensive list of ways to do this.
For those of you who have long considered credit card interest, overdraft charges and excessive bank charges (where’s the fairness in banks charging a £28 ‘fee’ just because they didn’t have the money to pay a direct debit) as just part of life….it doesn’t have to be this way. The cruel, Catch-22 element of debt, is it’s those who can least afford to pay these charges that are most likely to be paying them and it makes debt for them a much deeper, darker hole from which to escape. As a result, turning it round for you will be harder than most but it really doesn’t take much to start clawing your way out of that hole. Balancing the books will mean that you’ll soon head away from these outrageous charges and you’ll never have felt richer. So do yourself a favor, as you start balancing those costs, waving goodbye to the worst of the bank charges, you might just want to rise a middle finger the next time your pass you chosen high street bank. It certainly won’t help you get those fees back but it will definitely, without doubt, make you smile…a lot!
The debt-free minimalist approach: So now you’ve lightened the load, bought in a little gas for the burners, it’s time to start saying goodbye to debt and begin to look forward to the land of freedom. It might be some way off yet, a blip on the horizon even, but the time will quicker than you think and once you get there you’ll probably want to say forever. Balancing the books is a pivotal moment in becoming debt-free and it doesn’t take much, a little bit of time, a little bit of discipline and a little bit effort, but long-term it will be the best paid little bit of effort you’ll ever make!