I’m guessing this view of how to reduce debt might not be a popular one. Why? Because it impacts on your every day life, your habits and your accepted comfortable view of things. But here’s the thing, if you want to reduce debt you need to make some changes. Otherwise it’s a simple case of “do what you’ve always done, get what you’ve always got”. I’m assuming you want to get something different, specifically you want to get rid of your debt.
Well here’s your chance to get rid of that debt, but a word of caution, some of what you learn will shock you, I know it shocked me. But don’t worry, you’ll be able to put what you learn to work reducing your debt, yes that’s right reducing your debt, and not creating more debt. Now if you want to cut to the chase read the last four very persuasive paragraphs.
Let’s check out a couple of friends of mine. Please don’t get me wrong here, I’m not criticizing this couple, or judging them in any way. Heaven knows I could use myself as an example, but my leakage centered around food shopping rather than alcohol, and to my shame I still slip from time to time. But back to you, the only real question to ask yourself is, “can I take something from this story that will help me to reduce debt?” After all debt reduction is what we’re talking about, isn’t it?
OK, let’s meet our couple. They’re in their early thirties and are earning $40,000 pa each. They work hard and believe they deserve a few ‘treats’ in life. But they also want to buy a home, problem was they couldn’t get the deposit together. This was a little puzzling and they were looking closely for leaks in their budget. They discovered a great big leak. A leak that didn’t help in saving for a home, or reducing debt.
So what was the leak. A great flood of alcohol. Now alcohol is the example here but it could be anything. As I said, in my case it was food shopping. I could blow between $60 and $100 every week on indiscriminate food shopping, and did that help with reducing debt, NO. But let’s get back to our couple, they enjoyed wine with dinner, and lunch in the weekends, and a glass of wine or a few beers watching the game on Saturday night. They also enjoyed the odd night out. But you have to ask yourself, is this how to reduce debt or is this a very poor strategy? Let’s find out.
Well here’s the thing, it’s alarming how much these few glasses of wine and a few beers add up to. Let’s see, 4 bottles of wine and a dozen bottles of beer every week, $120, dinner out once a week, another $40, clubbing once a week with friends and paying club prices, another quick $80 on alcohol. A total of $240 a week on alcohol! Ye gods! What did the aspirin cost??
OK, some weeks it may have been less, but some weeks it was definitely more, as we never factored in the vacation effect, a lot more alcohol is consumed at vacation time. Now you have to ask yourself, is this a good ‘How To Reduce Debt’ strategy? But as bad as that $240 a week, or $12,480 a year, picture looks, I’m afraid it gets a lot worse.
The $240 which has been spent on alcohol was ‘after tax’ dollars. In other words it’s money that they’d already paid tax on. So just how much did this nice hard working couple have to earn to have those few drinks. Let’s assume they were paying 25 in tax, at $12,480 spent over the year, they would have had to earn $16,600.
Even scarier, my friends both earned $40,000 pa, so for the first 10 weeks of the year all of their salaries would have to be put aside for alcohol, that’s both of their salaries for 10 weeks. No wonder they couldn’t save the deposit for their house!! Is this how to reduce debt, no definitely not. So what does this all mean to you? Take what you’ve learnt and sift through it to find what you can use to stop leakage in your own budget and reduce debt, reduce debt, reduce debt. Have I made my point? Good Luck.
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