It looks like the world financial system is beginning to recover from the financial crisis but many of us are still experiencing the effects of that and our own financial crisis and we are suffering debt problems that may take us years to overcome. It would seem that for the last decade or so we have all been caught up in a money merry go round where we mostly ignored the fact that eventually debt has to be repaid.
We were all so reassured by the fact that house prices just went up and up we figured that if all else failed we could always sell the house and clear all of our debts with no trouble. Unfortunately the housing crisis means that property is not worth what everyone thought it was just a couple of years ago.
When you base your whole financial philosophy on an idea, like house prices will always continue to rise, and suddenly that fundamental feature of financial planning falls over you are in a difficult place. Trapped between a rock and a hard place you need to change your whole way of thinking about money, credit cards, loans , mortgages and other financial products.
Trying to understand money is a difficult thing to do. When the banks are running short of money, government is short of money and we are short of money it makes you wonder where it all went. All we know is that we either have spare cash or we do not and where it comes from and how it comes into existence is unimportant. If you have no money to pay your bills you need to worry about how much money you have right now and ignore the bigger picture of how money appears out of nowhere in the good times and fades mysteriously away when times are hard.
We have to deal with the real world of earning money and paying our bills. We are struggling now and it is not something we ever want to have to go through again in the future. We need a new approach to money. Strangely, this new way of looking at money is actually an old idea. We use cash to pay for things and we avoid getting into debt.
Debt has become normal in recent years. Nobody seemed bothered about borrowing very large sums of money to buy homes, to improve our homes and buy cars and luxuries. We all felt we were living the good life but, in fact, rather than living the dream we were living in a dreamworld. Debt is borrowing from the future to pay for what we want today. The money has to be repaid at some point and this means that when that time comes we will have even less money to spend on what we need because we are still paying for what we have already bought.
It is a lesson we ignore at our peril as we have now discovered. Borrowed money costs more than real hard cash. You have interest charges added to the bill for whatever it is you are buying with borrowed money. Things cost more when you use credit cards and loans to pay for them. Ignore the ticket price because you are not paying that price, you are paying that price plus the interest charges on the debt.
In past years people were scared of getting into debt for fear that they could lose their homes and businesses if things went wrong. We seem to have forgotten that message that things can and do go wrong. We all fell for the myth that the problems of boom and bust were behind us and everything would be rosy all the way to the rainbow at the end of the road. We were wrong.
The lessons we must learn for the future are that money is something to be valued and not just carelessly spent. Debt is something to be avoided where possible because it is expensive and if life turns difficult those debts could be a millstone around your neck leaving you drowning in debts you cannot pay. Hang on to your money and use it wisely. Avoid getting into debt and if you can get into the habit of saving up for things they cost you less in the long run because you avoid all those expensive interest charges.
