Wednesday, April 18, 2012

Getting Out of Debt: Rule# 3

"Cut your losses! Stop borrowing money that you can't afford to pay."

Getting out of debt and managing money boils down to one very important human trait, self-discipline - the ability to calmly say no when your body is itching do something foolish like spending till bankruptcy.

The main reason many people are buried in debt or can't manage their money is because they cannot say no to their want or to the want of their love ones even if the want is not really a need.

I don't mean that you have to be stingy to yourself, your spouse or your children. But you have to be realistic as to what you can afford. You've got to draw a solid line that says 'stop, nothing more beyond this.' This should be clear to you and to your love ones. And you should respect this stop line with all your heart and mind.

In my family, for example, we have what we call 'Family Night' and we do this every Friday evening. In celebrating this event we follow two unwritten rules: (1) We have to spend within the allocated budget  (2) Even if we don't have money, we celebrate it anyway; there were times that we just stayed at home and watched one video because I don't want to cross the stop line.    

So before you swipe that shiny credit card or borrow money from the Bombay in motorcycle to buy something, ask yourself these questions:

If I don't buy this will I die? Will my family cease to exist? Is this really very essential?
Can I put off buying this until later, when I can afford already?
Do I have money to pay for this? Can I pay this one time once the bill arrives?

What good does a new cellphone, a new laptop, a new tab, a new home theater, etc. bring to you if your bleeding inside from debt, and the only way for you to pay it is to borrow some more?

Stop your losses! Use that credit card only if you can pay the full amount one time. If you pay only the due amount, then you're still bleed from hidden interest. You are not cutting your losses.

NOTE: To me there are only two valid reasons to borrow money: (1) When life hangs on the balance (2) When you want to grow your money by putting up a business or by investing.

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