Did you known that 36 percent of Australians would go into immediate debt if they faced a bill exceeding $1000?
Living like that is a type of financial slavery – your life is bound by strict financial limitations and you can’t even see a pathway to being debt-free.
Imagine being able to make decisions without constantly worrying about money or having your finances govern all your decisions!
But how can the cycle be broken?
Well, the answers may be simpler than you suspect; many Australians are held back NOT because they don’t make enough money; it’s that they’re not making good use of it.
If you are living a life of financial slavery rather than financial freedom, it may be due to one or (more likely) several of the following factors…
1. Lack of financial literacy
You don’t need to be Warren Buffet but why is it that we educate ourselves about so many ways to make money; but rarely on how to use it effectively.
Like it or not, personal finance is a major part of most people’s lives; giving focus to how we use it and learning ways we can make better decisions about our money is really important and a really effective way to get ahead. There are no excuses here. We have all the resources at our fingertips these days yet many Australians turn a blind eye and plough on in a permanent state of financial illiteracy. If financial management really isn’t your one of your strengths then acknowledge that and get help. Your future self will thank you.
2. Not knowing what you really want
Not determining what’s most important to you is holding you back. If you are happy to live day by day without working towards any financial or life goals, you may wake up one day and realise that life has passed you by.
If you take the time to consider your financial goals and create a plan, you will have a framework to work with and to manage your cash flows accordingly.
Don’t worry if this sounds daunting – there are professionals who can help you formulate a Cash Flow Management Plan.
3. You choose your freedoms and your chains
Being able to say ‘no’ to unnecessary purchases and living by a financial framework is something many people find tough to do.Yes this is lack of will power but there is more to it than that.
Why? Because you don’t see all the small financial decisions you make as choices that form the fabric of a larger picture. You are choosing the freedom of buying your lunch everyday but chaining yourself to debt slavery and limited working choices. Some may call this lack of will power. We see it as not spending the time to vision the big pictures and choosing the right Freedoms.
In the 4-hour Working Week, Timothy Ferris makes the point that if you really want a Porsche, it makes more sense to hire one than spend money you don’t have. Now that is a clever choice.
It may not be a Porsche that you crave but the point is that getting in debt due to instant gratification is a slippery slope. Willpower is an exhaustible resource but if you work on changing your frame of mind so that your priorities are clearer, you won’t need willpower.
4. Making time
You’re busy with work, family, partner, mates etc. right? You don’t have time for money matters and anyway, they’re not a problem… are they?
Well, ask yourself, ”Am I one of those Australians who would be in immediate trouble if you had a sudden $1000 invoice to pay?”, “Am I the 1 in 3 that are two pays away from Financial Distress?”
If so, your finances are an accident waiting to happen. You really DO need to make time to attend to your finances – or outsource to professionals who can help you prioritise it.
Doing nothing about your finances will get you precisely where you are now.
Some things in life can cope with a ‘she’ll be right’ mentality. It’s best not to get stressed out about the smaller things that can rock the boat.
But your finances are not one of them. Unless you take active steps to help your money work for you, you can almost guarantee that it will cause stress further down the line. Maybe it is already a constant stress in your life that holds you back from truly thriving. Get proactive with your finances. Getting started is the hardest part: here’s a good place to begin.
6. Seeing all debt as bad
There is a tendency to consider all debt as bad – or to be confused by the differences between good and bad debt.
In short, high interest, short-term debt for discretionary spending is almost universally bad: this applies to credit card debt or many personal loans for instance. The short-term advantages are usually outweighed by the risks of high-interest debt.
However, lower interest, longer-term debt that finances investments is often considered as ‘good’ because it is helping to shape a more secure financial future. While it takes more of a commitment, the longer-term benefits outweigh the risks.
7. Reward spending
Do you feel that you’ve earned that 3-week holiday in Bali?
That’s fine if you can afford it; but if this is money that could be used for higher-priority needs, then it may be inadvisable.
Another type of ‘reward spending’ is when you spend money just to get the rewards and incentives from retailers and credit card companies. This can derail your financial plan and should be a major red flag. If you recognise yourself here, go back and read Point 2.
8. Getting sucked in by the advertising
The truth? Nobody really cares if you have the latest iPhone or a new car. Friends may momentarily be impressed but it will soon pass. Let’s face it after the initial rush of it you don’t even care.
Don’t be fooled by the marketing, which is specifically designed to draw you in and convince you that you need something. You probably don’t.
That money could be better spent going towards building financial freedom rather than creating more bad debt.
9. Lack of organisation
Are your finances a mess? Do you have a budget? How do you even know if you could afford to pay an invoice of $1000 if it landed on your doorstep tomorrow?
Lack of organisation hampers your ability to use your money wisely; it may also incur debt more easily – as you miss paying bills and incur extra charges due to late fees or reconnection fees.
If financial management is not your thing, outsource it. Spending money on a service to help you get organised and ahead is money well spent and may cut years off your retirement age.
10. ‘Shortcut thinking’
Two areas of life to which people commonly apply ‘shortcut thinking’ to are both areas that they can least afford to do so: finances and health.
People sometimes think a magic pill will come along to help cure any health problems – so they don’t have to be that careful about diets or exercising. The same applies to finances: especially when we’re young, we think that financial problems cannot happen to us.
But this type of thinking makes us either sick, financially enslaved, or both!
Do any of the above ten factors sound familiar? If so, you’re a step ahead of most people in admitting it!
The next step? Do something about it!