Sunday, January 12, 2014

2014 The year of spending, saving or paying down debt?

Polling indicates that the number one issue for Canadians is paying down debt, (STORY HERE).  While it was the choice of only 16% of respondents, if you add in the next top selections:  building savings, managing day to day spending, getting current bills paid and retirement planning...well. 

Its pretty apparent, we Canadians are focused on improving the state of our personal and family finances. For some that will mean getting rid of high interest consumer debt, for others it will mean building a nest egg, among numerous other choices.  

That's the problem with writing about personal finance, there are no one size fits all solutions.  We all have different goals, different circumstances, different incomes, different expenses.  WE'RE ALL SNOWFLAKES, UNIQUE.  Seriously though, even people with the same goals will have at least a few differences that will affect how they might go about achieving a financial goal.

There is one thing we do have in common however, and that is we all share in the weaknesses of the human condition.  We are all programmed in much the same way.  Human beings are wired to seek pleasure and to avoid pain.  

I want to stress that point, we all  SEEK PLEASURE and try to AVOID PAIN.

Think about someone with a toothache, maybe its happened to you.  A trip to the dentist is seen as too painful so sufferers will pop pain killers until they don't work anymore, only then will they go to the dentist. When the tooth hurts too much, only then is a painful appointment made at the dentist. Why?  Because the patient seeks the pleasure of a pain free mouth.  

When it comes to household finance, spending is a lot more pleasurable than saving, and with credit so easy to obtain, taking on debt has become basically painless....unless total debt grows so large it can't be paid back.  Then debt can become like a chronically bad tooth.  

Understanding this basic motivation though (seeking pleasure and avoiding pain), is the key if one hopes to make a meaningful change in anything, be it in personal finance or another endeavor.

My advice is that whether the goal is debt reduction or to put some money aside for a nest egg...find some way to make it pleasurable.  Build a graph, or some type of visual representation so you can see your money growing or debt decreasing, other than by going on line or checking a balance statement.  Its not easy and our entire society is geared towards convincing people to live for today, without mentioning that its often at the expense of tomorrow.  Maybe find a picture of a beautiful resort, with saving and debt reduction moving you closer to that destination, versus a dingy retirement home the result if you don't eliminate debt and start to save.  

I'll have more on this topic later, specifically on the different saving vehicles available and on strategies to reduce the cost of debt.

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