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Five ways we find ourselves buried in a mountain of debt

Often when people meet me out and about, they want to talk about the show. At some point in our conversation they say something like, “How’d they get themselves in such a mess?” These are the people who can’t conceive of spending more than they make or having all that debt. Here are five ways it happens:

1. No Money Management Skills

Unfortunately, a lot of people were never taught the skills of money management. Each day people fly by the seat of their pants, hoping that things will turn out OK. Some days they do. Many days they don’t, and they end up running around firefighting to stay afloat.

If you don’t know how much money you make, how will you know how much money you can spend? If you charge whatever you’re buying on your credit card, but you don’t know how much you have to spend, how will you pay off that credit card when the bill comes in?

A lack of money management skills is, perhaps, the biggest predictor of financial failure. All the credit counselling, all the bankruptcies, all the income in the world isn’t going to save your butt if you don’t take the time to figure out how to use what you’ve got to your advantage. There are rules to follow, work to put in, and self-control to be applied.

2. Underemployment

Some people are just born lazy, y’know. I’ve worked with more than one person who thinks that earning $14 an hour for 37.5 hours a week is just fine.

Bringing home $400 a week is fine, if you’re prepared to live on $400 a week. But most people aren’t. They want to drive cars, they want to take vacations, they want to have cellphones and premium cable and everything else their pals have. Sometimes when I tell these people to go make more money, they complain that it’ll take away from their Mommy or Daddy jobs. Yet many of those same people spend hours a day doing stuff that doesn’t involve their kids. THOSE are the hours you should be spending making more money.

3. Income Goes Down, Spending Doesn’t

People get laid off from work. People get sick. People stay home to raise their children. Their incomes go down, sometimes waaay down, but their spending doesn’t change. They use their credit cards, lines of credit and overdraft protection to fill the gap and then say they are surprised to find they are buried in debt. Then they get a consolidation loan or wrap the consumer debt up in their mortgages and go out and do it all over again. Of course, these same people could have built themselves a buffer against changes in their financial circumstance, except for Reason No. 4.

4. No Savings

We seem to have developed an aversion to saving. We use the excuse that we can’t get much return on our money right now, so what’s the point. Ha! Talk about justification. Wow. We’ve watched the savings rate plummet over the past three decades, hitting the negatives. How can that ever be a good thing?

Of course, if we were willing to live on a little less now so that we’d have a cushion set aside in case we lost our jobs, we wouldn’t be pushed into Debt Hell quite so quickly. And if, knowing we were going to take time away from work to raise kids or go back to school, we set aside some money to see us through our future plans, we wouldn’t dig ourselves a tunnel to Debt Hell.

5. Getting Sick

Some people believe they will never get sick. It’s why people don’t bother to get critical illness insurance, disability insurance, or life insurance. In my mid-40s, my best friend died. She was also in her 40s. But before she died, she had years of dealing with MS and then with breast cancer and finally brain cancer.

If she hadn’t had disability insurance, she would have been totally screwed. As it was, every month was a challenge financially. And believe me, she didn’t need any more aggravation.

Of course, you may not be the one to get sick. It may be your partner, at which point you better have some money to help pay for the things he or she used to. Or it may be a child or an elderly relative that causes you to lose time off work.

There are life events that can contribute to pushing us into debt, but if we had been managing our money all along — saving some, covering our risks with insurance, being responsible with our money — those life events could have been a lot less painful.

Want to be smarter about your money? Go to mymoneymychoices.com and follow the roadmap to success.

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