Five Behaviours That Lead to Debt

Debt is a useful personal finance tool that lets you acquire or invest against future earnings through an arrangement that profits all. It is also an opportunity to explore and evaluate your financial health and intent along with your desires and values. The trouble starts when you find it difficult to process debt with your regular earnings. There are many articles on this site about how to deal with debt, but what if you could take steps to change the attitudes and behaviours that lead to debt in the first place. Here is a look at the most prevalent habits that lead to debt.

Impulse Buying

Missus and I quite look forward to our monthly visit to the warehouse supermarkets. We stock up on milk and water for Junior and visit the loo before entering. We always go with a list, and a reasonably modest one at that. Yet, it is yet to happen that we stay even remotely close to our budgeted bill amount. And we always run out of bags no matter how many we take along. The extras are almost all unnecessary and sometimes expensive indulgences. Stuff that you would really not suffer any discomfort without. The other example of impulse buying can be measured by the number of times you buy something, and next morning, are not so sure. Haven’t we all? The way out is to have a written and committed list of what you need, avoiding things like the gourmet supplies section and the cycling gear, and having a gentle reward system for every month or quarter you stay on track.

Borrowing To Fund Lifestyle

If your lifestyle demands expenses much higher than your earnings or available funds, you would do what many of us do, a small Mallya. This is nothing but taking a loan to buy things and have spending money to sustain your lifestyle. A loan, whether at no interest or low interest, is a loan, and needs to be paid back. Your earnings get apportioned to service these loans just as it does to pay for your regular expenses. If you are even thinking of borrowing to buy that camera, or computer or designer wear when you already have things that well serve the purpose, you could perhaps be making changes to your lifestyle instead.

Ignoring The Need To Understand Credit

The credit card is a powerful tool, but one that comes with terms and conditions that can appear quite brutal from a borrower’s perspective. In addition to the 35% and above interest rate, there are numerous clauses that make poor business sense for the borrower, but since everyone believes they are getting out of debt by Wednesday, few pay true heed to them. These start showing up from the first time that you do not clear your full dues on or before the date it is due. As things worsen, other clauses kick in, increasing the cost of servicing your debt without you realizing it. For those who have been there, you know what I am talking about. For the rest, you don’t want to go there and the way to do that is to understand how your card works, when it falls due, what percentage of the card limit is safe (if not good) to use, etc.

Choosing Not To Have A Plan

If you have a personal finance plan, one that includes a working and viable budget, basic emergency funding, and a diversified portfolio of savings and investments, you are in good company. Not a crowd, but good company. Not all of us are there yet. And perhaps for good reason. You might think of sitting down with a pen and a notebook to do your monthly budget quite Dickensian, or you might weigh the option of savings against that snorkeling trip you were dreaming of. Statistics show that those who have a written down plan succeed more often than those who don’t. I would choose uncool to being in debt any day. You?

Speculations And Addictions

The original title for this section was “Thinking and Drinking.” The thinking bit holds, but it is not drinking alone that is a problem. Not just drink, drug, gambling, or sex that is the problem. Even the most salubrious of habits, buying and reading good books, for example, has the potential of acquiring an addictive hue, where you are compulsively indulging in it at the cost of your financial welfare. I have done this with books and CDs, art supplies, audio equipment, gardening supplies (the organic years!!), in addition to fine brews and that elusive God of Fire. To each their own. The thinking part seems more straightforward, which is why I re-worded it to Speculations. We think that things will turn out a certain way. That our livelihoods, earnings and savings will be secure. That our business plans will succeed in the time we envisage. That markets and realty will move in certain ways. The truth is that they often don’t and we might not have factored that into our plan. There is also the tendency to dig your heels in deeper when in crisis, telling yourself, it is always darkest before dawn. You are also more likely to fall into a deeper pit than you are capable of getting out of before dawn. So to speak. All of this is the result of speculation parading itself as reason.

All of debt can be seen as arising from one or more of these attitudes and behaviours. If we can take steps to address these tendencies within us, we will keep debt in its place. If not, debt teaches us what we need to learn. Ain’t pretty, from what I seen. Tell us about how you see debt and the behaviours that lead to it.

Subhorup Dasgupta is a Hyderabad-based writer and artist. His writing on frugality and responsible living stresses the need to understand, simplify and organize money as a crucial step towards a happier life.  He blogs at Subho’s Jejune Diet.