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Our Consumer Debt Crisis

I recently read a great article from Scott Pape, the Barefoot Investor where he discussed “The Golden Triangle of Happiness”, the fruit of 15 years of research into happiness and wellbeing from Deakin University Emeritus Professor Robert Cummins.

Professor Cummins identifies 3 things that he feels are the foundation to happiness:

1. A sense of purpose
2. Strong personal relationship/s
3. Financial control

What may come as a surprise is the research found that making more money may not make you happy, but not being in control of your finances will make you very unhappy. It found that financial insecurity produces similar feelings to that of physical torture.

Think about that! This is very scary when we put it into the context of the fact that more and more people are getting caught in the trap of consumer debt (most commonly in the form of credit cards and store loans).

According to the Australian Bureau of Statistics (ABS), Australian household debt was recorded at a huge $1.84 trillion which is equivalent to $79,000 for every person living in Australia at that time (ABS, 2013). When RateCity did a consumer study in 2014 they found that more than half of Gen Y’s with a credit card never had a $0 balance in the proceeding year, and 63% were not aware what interest rate they were paying. To me what all these figures mean is that we have a lot of people being ‘tortured’ by their financial situation.

We have become so accustomed to debt, it is expected that once we begin to earn an income, borrowing is the next sensible step.

Just last week I watched in shock as a T.V. commercial advertised a personal loan as an acceptable way to fund your next holiday! What better way to pay too much for your holiday, than by paying interest on it.

In reality, taking on consumer debt is essentially borrowing from your future. It puts you and your family at financial risk and it will most likely cause you stress, keeping you awake at night.

Debt often gets out of hand and can cause you to easily overspend money you have not earned yet.

You will NEVER get a better deal than when you walk into a shop with cash.

It’s the tale of many.

My question is, whatever happened to good-old-fashioned saving up to buy something you want, like they did in our grandparents’ days? It’s time we act our wage and embrace the strange concept of “living within our means”.

I believe what has happened is a societal shift towards selfish living, a lack of patience and the idea we have to ‘keep up with Joneses’ in an environment where no one wants to wait for anything anymore. Rather, we want it all now.

As a family this was us – until a number of years ago when we decided to buck the trend and instead of playing now and paying later we decided to pay now so we can play later. Or as we like to say:

“Live like no one else so later on we can live like no one else.”

If you are experiencing this financial ‘torture’ and have consumer debt – it’s time to work your way out. Financial security starts when you get a realistic plan for how you spend your money, including a plan to pay down debt. In our finance course we call it a Debt Demolition Plan and it outlines specific points on how to get out of debt and turn your life around. It focuses on building meaningful assets and growing lifetime wealth, which is not that hard to do! The first step is to stop digging the debt hole.

Once you’ve realised this, you are well on your way to getting rid of your debt.

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