Getting Out of Debt: Rule# 5

"Don't use a basket to hold your water."

In short, manage your money well.

As a little boy, one of my favorite pastime was to play with marbles with my neighborhood buddies. What we did was to dig five holes, each hole was small enough for a marble to fit in. Then we took turn tossing a marble into the direction of the holes. The one who could make his marble fall into one of the five holes was declared the winner, and as one song says, "...the winner takes it all." (At least one marble from each losing players.)

For a while my days were filled with fun. Because I was fairly good at it.

But then a new family arrived in our neighborhood tugging along a boy by the name Rico (not his real name).

One afternoon, I saw Rico playing marbles with my old buddies. With a plastic bag full of marbles in one hand, I confidently challenged him. We played the whole afternoon. By the time I decided to quit, I had only a few marbles left. (I cut my losses, but it was a little too late.)

Each step I took my heart sank a little deeper as I graved the loss of my treasures; I had played hard to collect those. I couldn't believe I lost them. The sight of Rico bouncing on his way home, a plastic bag bulging with marbles dangling in his hand, made me feel more miserable. As one song says, "...it (she) used be mine, oh mine."

Don't put your confidence on your money! Simply because you are sitting on a stack of cash doesn't mean that there is no chance on earth that you would sit on the dirt again. If you spend you cash with your eyes closed then I won't be surprised that the thousands (or millions) you have today will be gone soon.

Mismanaging your finances is like putting water on a basket. No matter how many barrels you pour in, it won't hold. So maybe the solution to your financial problem today is a new way to manage your finances. I couldn't imagine my life today if I didn't put in place a system that would help me manage my finances. I'm sure it saved me from a lot of unnecessary headache.

In my next posts, I will share with you little by little my system. If you are in financial trouble, then consider it my way of helping you. It's simple; it's not really revolutionary, but it keeps me and my family floating so far. And yes, I do have of bills coming each month just like you.

Getting Out of Debt: Rule# 4

"Pay off your debt!"

My mother owns a small sari-sari store. As what usually happens in this type of business, a lot of people owe money from her. There are some who don't pay their debt and instead start avoiding my mother and patronizing other sari-sari stores, my mother's business competitors. This really upsets her...who can blame her?

When my mother is upset with a debtor she would usually tell me, "...if only Mr./Ms. So-And-So would pay me P20 per day I would be fine with that rather than seeing him/her pass by my store as if nothing happens, and with no explanation why he/she couldn't pay as promised."

No matter how big or small your debt the only way to get out of it is to pay it off. Ignoring your debt is not only very irresponsible, but also immoral. You don't only owe money to your creditor, but you also have moral obligation to him/her. Don't forget that during your times of need your creditor was able to help you, so it's only right, and fair that you treat him well by paying off.

However, if you have too much in your plate then instead of avoiding your creditor, why not talk to him/her. Apologize if you have to -- you owe that also to your creditor if you can't pay as 'you' promised -- and negotiate for a easier payment term, something that you can afford while not spending more than you earned.

Like my mother, your creditor would still be upset specially if he/she needs the money, but at the same time you will earn his/her respect for doing what is right even when it's very unpleasant. Your creditor would mostly like agree to receiving smaller down payment than not receiving anything from you at all.
 
Taking legal action is too much hassle, not to mention costly, to your creditor as much as to you. But if you make him/her angry then he/she might bite the bullet and sue you. And this would only add trouble to your existing troubles.

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.

Getting Out of Debt: Rule# 2

"Keep your money off your pocket!"

Once you honor Rule# 1, the next rule to honor in order to get out of debt or stay free of bad debt is 'Keep your money off your pocket!'

What do you do after you receive your salary or your income or your commission or your sales? Spend it? Keep the money in your pocket or wallet or ATM? Or do you allocate it first?

You response is very crucial to getting out of debt or staying free of bad debt.

If you keep you money in your pocket or wallet or ATM, you can kiss your money goodbye. The money in your pocket or wallet or ATM is money here today and money gone tomorrow. And usually you won't even remember where did it go! So keep only in your pocket or wallet or ATM the money that you can afford to spend.

If you choose to spend first before paying your debt then chances are that nothing will be left to pay off your debt. All the while the interest keeps piling high, burying you deeper into debt.

However, if you choose to allocate first before spending anything then you are putting yourself in a better position to pay off  your debt or stay out of bad debt.

This is my suggestion to you. Once you receive your salary, income, commission, sales, etc. allocate them right away! For example, put inside an envelope (with appropriate label on it) your payment for electricity, telephone, water, debt, etc. Don't spend this money.because these money are not yours anymore.