Tagged: Debt

Leveraging Your Relationships #1: Defining A Leveraged Relationship

Debt! This is the most commonly word used on this blog; I have used it in the context of how to reduce it, effects of debt and in various other forms. Paying off my debt is my number one priority. Debt is not necessarily as bad as I have mentioned before, by definition it is a leverage that you can utilize to enhance your return on investments, provided that the debt is invested and not consumed.

This post is not about debt but about leverage. You would have seen this word leverage in many financial books and novels. Some authors have written about leveraging money and some have written about leveraging time. These are primarily called as other people’s money (OPM) and other people’s time (OPT). Today I want to tell you something about leveraging our relationships.

Have a facebook, linkedin, myspace, or orkut profile? Then you know the concept of social networking. If you ask a question why these sites are so popular? you would get the answer as A network of like minded people with similar interests can give you further opportunities in your career, or You can remain in touch with those who are close to you but physically distant apart or you may find some other answer for your question. Nonetheless, you have an online social network.

In today’s world when networking is the happening phenomenon, people are resorting to virtual networks too as in Secondlife.com and There.com. If you go to the conceptual level then you will see that you are forming a community and want to share the relationships in those communities for mutual benefits.

Simply put, you want to use your relationships to improve your life.

The social networks are useful in long term but have you ever used or tried to improve your personal relationships that you created throughout your life? You have a debt of X amount, over which you are paying an interest, can’t you use your existing relationships with your close friends and family and borrow some money from them and pay of the debt. You might say that this would be rolling over your debt but this would be done at a lower interest or no interest (if you are in India).

You can leverage the relationships at workplace too. Ask your colleagues to do some minor works when you are in some work pressure or some deadline has to be met. This would provide efficiency in your work and you would be working as a good team player.

Now you would say that this is OPM and OPT but the underlying fact is that this is neither borrowed money (for which you pay interest) nor outsourced work (you pay for service). It’s just getting things done with your strong relationships. Now you cannot borrow huge amounts but you are borrowing relatively smaller amounts based on the strength of your relationship. Same is true with the work that you will ask from your colleagues.

Cookingmoney presents a line of thought on the attributes of money, managing debt, some great ideas you can use, and Investing tips. Join the community by subscribing!

DeCluttering My Routine

I wish all of you a very Happy New Year and a belated Merry Christmas. I apologize for being gone for some time now. I was on a work related trip for the past few days and was now back again with a concept that I hope you would like.

Focus! This is what I lack sometimes and which obviously throws me out of competition most of the times. Due to lack of focus I am not able to address my priorities. My priority today is to reduce my debt and to have an initial financial plan for myself for the next five years.

Focus as per the wordweb online dictionary is defined as

The concentration of attention or energy on something.
Maximum clarity or distinctness of an idea.

I tried to frame my own definition as

Remove all the clutter around something (your priorities) and you are automatically focused or in other words finding the correct answer by eliminating the all the wrong answers.

Lacking focus and purposely avoiding a situation are two different things. When it comes to debt, at times I try to avoid the matter. This you can say as loosing focus on purpose. Take an example, I have host of interests; reading, playing chess, playing video games, photography, watching movies. Now when it comes to ponder upon my debt situation I tend to resort to any one of the interest that I have.

If I can quantify these interests then I can say that photography requires skill, not only for shooting but also for editing the photos etc. this means some investment of time in acquiring other skills and it’s an expensive hobby. Playing chess, games are addictive and it’s a shear waste of time but when you make the high score then it gives you a high.

Now if I think of my priority and the first thing come to my mind is my debt, financial planning and money matters. So what I do to address them, I generally tend to occupy my mind with other things like a movie, or the interest that I have mentioned. This is primarily because I don’t want to think about debt, same is with financial planning or any other matter of high importance. The bottom-line, I am forwarding the problem, running away from it but sooner or later I have to face it. This running away is one of the reasons that I find one day trapped and cornered by debt and I was not in position to handle it.

If we can work upon the problem this could be avoided. There are various methods to do it, considering money as my priority I can do budgeting, keeping a list of purchases, controlling my impulse buying behavior etc.

The method I am suggesting here is an alternative process that can be used to focus on your priority. If you have difficulties in having a direct focus or you are purposely avoiding it then remove the elements that make you lose focus from your routine to force yourself to stay focus. For example you can just stay away from watching a movie or a video game etc. for sometime, then you’ll have nothing to do and you’ll be forced to think of the priority which is your debt or financial planning.

This process I have termed as De-cluttering My Routine. By doing this I am not only focused but I can find out finer things in my behavior which has similar clutter and in the long run it will surely pay off at least I hope so.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Debt Reduction Through Procrastinaton

I have never come across procrastination as a positive term till date. Procrastination as I define it, is nothing but not sticking to your commitment made to yourself. As per Wikipedia it is defined as:

Procrastination is a type of avoidance behaviour which is characterised by deferment of actions or tasks to a later time.

I committed to myself that I ll go for a morning walk to keep myself healthy. My behavior in the morning, May be tomorrow or, let me sleep half and hour or so. Same is with other commitments like avoiding high calorie food etc. It can be work related like, I have to complete X job after 3 days why not start tomorrow, anyways its just a days work.

Finally from any angle I look at it, procrastination is a negative term. I found debt is a kind of procrastination, well procrastinating your payments, but in this case there is a cost attached to it, ‘the interest cost’! The more you procrastinate the more expensive your debt becomes.

But I feel that we can use the very nature of procrastination to our benefit. Why not procrastinate our purchases? Say I will buy that tomorrow and pay tomorrow to avoid the cost. Sounds like postponing the purchase. One can say it is similar to postponing things, but I want you to put this as a behavioral change. Procrastinate purchase of things indefinitely unless the sword is on your head to buy that thing.

This is a shift in attitude to purchase things. For example, what I have read many a times on blogs, that prepare a list while going for shopping, in this way you will avoid any extra purchase. But look it at the other way round. Prepare an exhaustive list to purchase and the remove the not so necessary things from the list or set a later date (Procrastination) for those things to purchase. This way you will be using your list to the fullest. If this comes to practice then you are attacking your debt from both sides of your financial management sword.

I want to use procrastination as a tool not to reduce debt but to increase my money management skills or to control my anxiety/impulse to purchase things.

If you enjoyed this post, make sure you subscribe to my RSS feed!

Networth Update Nov’07

So my networth this month is Not positive :( well it seems that it will take ages for me to get into the positive zone. Today I extrapolated my future earnings and spending to arrive at the time that I will take to have a positive networth. I found that it would be somewhere after one and a half years. Though I will not be debt free but moving into the positive zone would certainly be a fillip.

One would think how I can imagine the positives of getting into a positive zone if I have not experienced it. Well, there was a time I was debt free would be the simple answer. But no! The answer is rather more simple, this month I did something special, I got out of my credit card debt altogether.

networth-nov.PNG

A long period of extreme frugality made me accumulate enough money. This money I put into stock market and when the market was doing well I sold some shares to pay for my credit card debt. Financing my bad debt with an asset was probably not a good move in some finance whiz books but it sure gives you a moral boost and avoids the side effects to a certain extent.

Last month the networth grew by 3.94 % and now with the credit card debt gone I will have more ideas and more spare money to grow my networth furthermore.

Now what next? I think the other positive that’s going to come out of this is that I would be able to channel some money to my emergency account and some for asset creation. This implies that I shall be able to move out from extreme frugality to just frugality. For the time being I can think of only these two positive effects.

I can now eye on the huge personal/utility loan. Soon I would be devising a plan to get out of it. The student’s loan can hang on for a while as its interest rate is too low and I am paying the interest regularly so no increment in the amount. It feels great! Wish me luck

Side Effects Of Being In Debt

stressed-out.bmpBeing in debt certainly brings its long term side effects and I have my share too. After almost a year my networth is almost the same. I can neither ignore the fact nor get away with my pathetic financial condition. The debt that I took for getting certain things gave me an initial pleasure of owning and flaunting those things. But this pleasure had side effects too that I now realize. The most primary side effect of being in debt is its effect on your mind. I feel that either our mind forgets how to live debt free or it’s too much pre- occupied with the debt.

The primary focus of the mind with debt over your head is debt! The sleepless nights of the questions (in your mind) like, “How to reduce it?”, “What other methods I can apply to reduce it?”, “Should I take more debt?”, “Balance transfers?”, “Where should I cut down on my expenses?” etc. In this situation you are never prompted to think that how did you get into this mess in the first place! Even if you think it over all you will think is, “Where did my money go?” and when you realize the grim situation you will then think, “I was dumb enough to not to keep records of my spending”.

The excitement of buying things that I now realize is ephemeral but the debt; no its not! and its side effects come along.

Continue reading →

A Five Stage Process of Getting Debt Free

It’s over a year and a half that I am in a bad debt situation and surprisingly it’s nearly one and a half years that I am into a paid job. If I correlate the two then I can conclude that steady income flow increased my debt taking tendency. In other words I will say that the security of getting my paycheck made me to overspend.

When I gave it a thought so as to find the reason for the above I could come up with only one reason I can pay it later when I get my paycheck. If I talk in time frames then I was spending future money into present but the problem with this concept is that you cannot account for future expenses (always) which come as an emergency e.g. bike/car repairs, health problems and many such unforeseen incidents/events.

So what happens next? I have already spent that money in the past and now I am stuck with a high credit card bill with no money to pay for, the result a bad debt and more importantly a way to a debt trap.

The cause: credit card spending! No, the cause here is trying to afford that you can’t just by assuming valid reasons for buying at that moment, but later in debt trap you feel that you could have deferred your purchase. For example, I need a new car, (mental process: the car I am driving is making sound, the mileage is very less and asks for more maintenance so why not replace it, I am getting a good deal with XX dealer). Next day you are with a new car along with a big debt on your head.

Now you are desperate to get out of it but you can’t as you cannot overclock your debt reduction process due to a simple reason, you don’t have any extra source of income and the debt brings interest and other charges with itself which further enhances it.

In this case my mind stopped thinking constructively for alternatives for reducing the debt as it is already preoccupied by the huge debt. The result, time wastage over trivial things and not be able to devise a plan. So what should I do? Well there is a way, which I am following and trying to get out of debt. Continue reading →