There are some things in life that are so important they warrant more than the usual five-minutes attention span we have been trained to have. Debt (as seductive a four letter word as ever existed) is one.

Understanding debt, recognizing how easily it entraps, planning strategies to successfully get rid of debt, takes more than five minutes, much more. So, it is imperative to find the time to learn how it can affect our well being. It’s like brushing your teeth at least twice every day. For years, you won’t notice the damage being done when you don’t but, at some point, you can’t ignore the bleeding gums anymore. There may be fix, but how good and at what cost?

This series on Debt Management is a must-read for anyone serious about financial stability.

Debt Free Living — Part 1

That was then…

There was a time when self-reliance was the norm. You made what you needed rather than went out and bought. You repaired rather than threw away.

It was from these savings that our grandparents and parents provided for their families, sending their children to good schools, providing good homes, owing little, and saving for their old age so that they wouldn’t be a burden on or be beholden to their children.

This is now…

Nowadays, we earn far more than our parents or grandparents ever dreamed of but, in real terms, we are less wealthy despite the trappings of “success” that we display. For unlike them, we owe much more than we own.

What we should be putting aside for our old age is being used instead to pay interest on credit cards and loans or acquiring every latest gadget and things to make us seem important, but which are not necessary.

The subtle signs of debt are around us

Just walk around your house and take a good look—the latest phone, a computer or three that are more high tech than some businesses use to make money, not to mention a separate cooking appliance for each dish we (never) cook. It’s like a knife cannot chop, mince, slice or dice anymore, we need an electrical appliance for that. Oh, don’t get me started.

We earn far more than our parents or grandparents ever dreamed of but, in real terms, we are less wealthy despite the trappings of “success” that we display. For unlike them, we owe much more than we own.

We fear losing our jobs, putting up with all manner of indignities, not because the loss would delay our retirement plans, but because we would lose all (we think) we have and come close to starving if we didn’t have a job for six months.

Just look at the Covid-19 shutdown—you would think the prior government shutdown was enough of a warning that we need to put aside a little something. People earning six figures showing up at food banks in fancy cars after less than 30 days. Then the story of one affected family winning a little money during the government shutdown, and it was off to Disneyland one week after being nearly homeless.

How we came to this is not even relevant at this point. What we do about it now, is.

Wealth is built by addition

The premise of this post is that a little earned here, a little saved there adds up.

All big things start small—the breaking up of an invisible atom precipitates the blast of the atomic bomb; a collection of little streams flows into a river that creates the power of Niagara Falls; a few dollars saved here and a couple dollars earned there, prudently managed, can build a retirement fund that will last over twenty years.

Wealth is built by the continuous intake of money and prudent management of its use. Management of the use of our funds is more important than the actual amount acquired.

Wealth is built by the continuous intake of money and prudent management of its use. The earlier we develop habits of thrift and wealth building, the easier and more certain our success.

Better now than later

While it’s never too late to start, the earlier we develop habits of thrift and wealth building, the easier and more certain our success will be, but we must remain diligent to the task.

Always remember that we can either

• choose to be wasteful while we have the health, strength, and opportunities to acquire and build, only to end up surviving at the mercy of others in our later years; or
• choose to be prudent by acquiring and husbanding our resources while we are most capable so that in our senior years we remain independent and can live out our years as we please, with dignity.

Have more than one income stream

How big or small this is depends on your current financial situation. Ideally, this should be passive income, where the money coming in is not linked to hourly labor. However, it never hurts to learn a trade or develop a tradable skill even as a hobby.

Life is full of vicissitudes and so a second income stream guards against financial difficulties in case you lose your main income source, temporarily or permanently. Initially, your second income may be needed to pay down outstanding debt.

Thereafter, this income stream should not fund daily expenses but should be saved for emergencies and to fund major expenditures such as replacing a car, down payment on a house and the like. This allows you to avoid carrying unnecessary loan balances and reduce or eliminate paying interest.

Live below your means

Always live a level or two below what you can afford.

It’s like a law of physics. If you spend less money than you take in, you will always have some money left over. If you save this leftover money to buy the things you need, you will not have to pay interest on any purchase except really big ticket items like your house and your first, maybe second car.

The less interest you pay, the more you have to invest. The more you invest, the better your old age will be. The more wealth you have in your old age, the better your children will treat you.

If you spend less money than you take in, you will always have some money left over.

Set up rules for saving and spending

For instance

• x% of each month’s gross income and x% of windfall amounts must go to savings before bills are paid;
• buy only what is needed or what will provide a monetary return (in income or savings) that is greater than its cost;
• never spend money that hasn’t yet been earned.

Never spend all of your income on recurrent expenses like food, clothing, utilities, entertainment. Sacrifice convenience so you can afford necessities and still put aside something. Except for very few items, make, fix, substitute, barter, share, trade, buy used, before buying the item new.

Buy the best you can afford (not necessarily the most expensive, just the most durable), but only buy sufficient for the purpose. Do not overbuy. A car is for reliable transportation; a house for shelter, security and the comfort and well being of your family. That is what you need, that is what you should buy.

Shy away from single-purpose appliances unless it saves money over the alternative solution. So, go for a toaster oven that has a rotisserie feature; a printer that faxes and scans, and so on.

Find alternative uses for an appliance by giving it a purpose-driven name rather that the manufacturer’s marketing name. So, a rice cooker becomes a low heat cooker/device that will cook rice; simmer soup, stews, milk; warm sauces, lotions and rubs, and so on. This way even if the appliance costs a little more, overall you spend less by buying fewer items.

You don’t need to buy status or eye candy to impress people; you need to get out of debt, stay out of debt, and gain financial security.

Any household item (appliance, furniture etc) costing less than three month’s salary must be saved for and paid for in full at time of purchase.

You must have a 25–50% deposit for any item you finance (e.g. a car) and the item must last for at least twice the financing period. This gives you time to save towards a replacement. If you have to borrow then “borrow” from yourself, repay the “loan” with interest.

Pay your bills on time, every time

As banks are the conduit for the majority of your income and payments; keep your own bank records and reconcile the bank statements or online accounts against your records each period. I know people who accept any balance the bank gives them as gospel—don’t; I worked in banking for years—things happen.

Review service bills and do comparisons with previous billings. Question new charges or increases in regular charges. Be especially diligent when you have cancelled or changed consumer services to ensure you are not still being charged for nonexistent services. Check bank statements for these as well.

Pay any bill that carries an immediate cash penalty (e.g. credit cards) at least one day before they are due just in case. Pay the others on the due date. If you are disciplined, on the day you get the statement or payment notice, schedule the payment for the day and payment source you choose rather that setting up automatic payments.

Lower your medical costs with healthy living

Safeguard your health. Find out what medical tests are appropriate for your age and sex and get them done regularly. Prevention is cheaper than cure.

Keep active. If you’re active at home and in the yard, do some form of sports with your children, swim, park far and walk briskly to and from your car, and take the stairs instead of the elevator, you won’t have to spend so much money for the gym and you can use that time to earn something extra.

While a number of chronic medical conditions have genetic or environmental components, many costly conditions (heart disease, diabetes, certain cancers) are caused or exacerbated by lifestyle choices related to diet, physical activity, alcohol consumption, and smoking. These are well within your powers to change and regulate. The healthier your lifestyle, the lower your medical costs relating to these preventable medical conditions.

Eat healthy, nutritionally dense foods. Cook more and eat out less. Convenience can kill you, literally; not to mention make you broke.

You know your body better than anyone; when it doesn’t feel right get it checked. See another doctor if you feel your issues are not being taken seriously. A stitch in time saves lives and money. You get what I mean.

Take control of your medical costs

Maintain a medical journal for your entire family. They sell those fancy hardbound books already sectioned off and pre-printed with the records you need to keep; but really any sturdy note book or journal will do. You can look at the fancy stuff to get ideas for setting up your journal.

Basically, for each person start with birth records, delivery by whom, when, where, any complications or significant prognoses, plus the usual statistics of weight, height etc. Record subsequent medical milestones, procedures done, by whom, when, where and the results. Keep copies of related documents.

At the front or the journal where it is easily accessible in an emergency, record current medical providers, their contact information and what they are being used for.

If you might think that this is unnecessary with current electronic medical records, think again—things happen. If they can cut off the wrong person’s foot or the wrong foot on the right person, they can mess up your records and the odds increase if you have identical twins with those cutesy matching names with SS# off by a digit.

Always ask the price for everything and ask for the best price you can get. Don’t assume anything when it comes to medical costs.

Let the doctor tell you what you are supposed to get at the pharmacy, then check what you get at the pharmacy. Always ask the price for everything and ask for the best price you can get.

Don’t assume anything when it comes to medical costs. Insurance doesn’t always mean best price, usually but not always. Sometimes the medication without insurance is cheaper than the co-pay. Ask.

Check and recheck every bill you get, even if the insurance pays for it. Check the expected cost before you do any procedure, check the bill you get when its done.

Oh, and one more thing, always check with the insurance company what you can do, when, where and by whom; check twice, sometimes three times for a tie breaker when you get conflicting information. Insurers have many reasons not to pay, so find out beforehand.

On to Part 2

Once you have righted the ship by earning and saving more and developed a mentality that makes thrift a habit, you are well on the way towards practicing prudent financial management.

Tackling debt management is your next consideration. The judicious management of credit directly affects your ability to maximize savings and investment funds and consequently long-term wealth.

Part 2 of this topic addresses this as well as investment management. It also touches on teaching your children to become financially responsible.