Your life is too important to stay trapped in the cycle
Your life is too important to stay trapped in this cycle.
More than 40% of Australians spend more than they make.
When you spend more then you make, you go in to debt.
Spending more than what you make “sells” your income to the future.
Without a plan to catch up to the cost of the money you’ve already spent, at some point the interest costs become a significant monthly expense and your debt will accumulate, increasing even faster.
How much of your money is yours and how much you pay toward your debt has a lot to do with how your debt got there in the first place. There are several reasons we accumulate debt, like paying for unforeseen emergencies or unemployment (especially during the global pandemic/lock-downs). But most often, debt is a result of bad spending habits, because unless you're spending cash, it's costing you money to spend money.
Imagine a credit card is someone granting you a favour to buy something you can't afford now but can easily pay off in the future. Well, the reality is that you simply end up owing more and owning less. We have been talking about the Joneses -- those neighbours with the life and stuff we want -- for almost 100 years, and we still can't keep up with them. Unfortunately, never being content with what we have can lead to large amounts of debt. And lacking the knowledge we need to manage that debt can keep those credit card balances static, or worse, allow them to grow.
Living month-to-month also creates a situation where you have nothing to fall back on if money runs out. And unfortunately, this over-spending lifestyle perpetuates the myth that we'll catch up on our debt in the future, keeping us in exactly the same situation year after year.
But spending less than your salary has never been the model that most people grow up with in the modern world, even though saving up and paying cash keeps us better positioned for the future. Your monthly income should be dedicated to future planning and present comforts, and you should pay money into your savings to reach goals and achieve whatever amount of financial security you desire.
However, even the most disciplined and creditor-savvy consumers can fall into debt in the blink of an eye. While over-spending isn't the issue for everyone, personal emergencies touch households daily. Financial advisors generally recommend a savings of at least six months or more to cover costs for emergencie
As much as it helps to see financial institutions as the bullies behind our debt woes, there is two-part accountability in debt creation. We have to take personal control for our own spending, but the lenders also have a form of impersonal control that can help or hinder us.
In the simplest terms, most worldwide economies need consumers to spend money for the health of the economy, and banks and other lenders facilitate that spending. Individuals with good credit histories can borrow at lower interest rates because they are less of a risk for defaulting. Those with bad credit will get loans at considerably higher interest rates. They get a bigger hole of debt and have an increasingly smaller shovel of resources for filling it up. But having good credit can be a detriment. If a lender sees you as a low risk borrower because you have good credit, you could be more of a target for low-interest offers on lines of credit.
After the global pandemic of 2020 we have seen an explosion of debt in Australia across all levels.
The Federal Government debt has pushed through $684 billion, States & Territories debt has accumulated to over $87 billion, with household debt reaching $1,653 billion and consumer credit debt reaching $3,697 billion.
Total debt in Australia has accumulated to $6,121 billion. Based on a population of 25 million people this equates to $244,840 per person in Australia.
When we pull away retirees, the disadvantaged, the unemployed, and those working on a part time or casual basis, we see the concerning numbers with how much debt is attributed to each Australian that works in a full time capacity.
When considering the Australian full time labour force, the debt raises to $716,149 per full time working person (based on 8,547,100 full time workers).
The trillion dollar question that will be asked over the next few years is how the governments on every level tax these 8.5m full time workers to repay the debt, whilst these workers continue to repay their mortgages, credit card debts and save for their retirement.
Many Australians do not have control over these external influences, like a global pandemic or government policies and decisions, however they do have control over the financial decisions they make and what their financial future looks like.