Master of Money Management

White lies and wishful thinking

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We all fib and for the most part, small lies are harmless indiscretions in our attempt to be “more” in the eyes of others, or we can use fibs to weasel our way out of a situation we would rather not be in. Self-deception on the other hand can have serious consequences if it is taken too far. One area we are most prone to lie about, is money. Most people want their peers to believe they are doing well and pretending to have lots of the green stuff is the easiest way to create the illusion.

People who are earning good salaries, driving decent cars and live in trendy neighborhoods may have an income that supports the lifestyle but more often than not, the overuse of debt is what’s holding up the illusion. People who are supposed to be “money smart” are often embroiled in a debt trap. They often feel a deep sense of shame and embarrassment and are very reluctant to reveal their situation. Coming clean to themselves, let alone to family or friends can extremely difficult. Sometimes the deception trickles through, even when people look for help from experts.

Estelle Scholtz-Mare, head of Financial Wellness for Momentum says “An individual may seek the help of a financial advisor as a way around their over indebtedness, regrettably, they are often reluctant to reveal the full extent of their debt; resulting in the solutions presented, being less than optimal. The long term prospects for sticking with the plan will be grim. It is therefore vital that you fess up and spill the beans”  If you find yourself behaving in the ways below then it is a good indicator that you are being deceptive and you need to re adjust your thinking.

  • If you are presented with a financial plan that requires a monetary commitment and you um and ah and delay the decision until “next week, next month or next year” this is a good indicator that you may feel over committed. It’s time to get realistic about your situation. The advisor has seen better and worse, they are equipped to put you on track and help with a debt elimination plan. If you can’t afford to take on a savings plan, be up front. Look at your budget and ascertain where the inefficiencies lie. Get your budget lean and mean so you can re-direct cash to paying off some debt.
  • If your advisor recommends a premium that inspires you to go looking for a bottle of whisky in his filing cabinet, you have probably left out some bills. If he or she was given an accurate picture of your finances, the premium would have been affordable. Now is a good time to look at your bad habits like gambling, shoes in every colour and spending way too much on cocktails. Do some culling and regroup.
  •  If you commit to a plan and call a few days later to cancel because you know it’s going to stretch you to beyond reasonable, its back to the drawing board. Save the excuses, they have heard all of them; from their cars being beamed up by aliens to houses being flattened by grumpy neighbours. Just make another appointment and shame the devil.
  • If you need to save X or Y in order to reach your goals based on current and projected income and you have to ask the advisor to shave it down to a fraction of what you need, you probably have too much debt.

So what can you do to shake the debt debacle?

Scholtz-Mare says “It is vital for individuals to realise that they need to move their financial goals from theory into practise. To do this they need to understand that financial wellness is a mind game, not just a practical exercise. In order to be successful they need to remove any obstacles that would prevent them from achieving their goals. The number one obstacle to not achieving wealth (next to not making any money at all) is debt. “

Here are some points to ponder while you are on your journey to financial wellness and debt elimination.

Debt: It is almost impossible to succeed with a financial plan if you are drowning in debt. Debt repayments will always consume much of your disposable income. Over-indebtedness is not a sudden event (unless you suffer a job loss or a massive unplanned expense) it is usually a result of uncontrolled spending. While you are scaling down take the time to address the attitudes that knocked you off track in the first place. Often overspending is more of an emotional issue than an operational one.

Decide to change destructive habits for good.

Perhaps the only way to stick to your financial plan is to change the way you think about money. People who have financial troubles often believe there’s no need for change or they are victims of circumstance. It’s the same belief that sabotages any goal that needs commitment. Understanding and accepting that things must change is a big step towards getting your finances in order.

If you are looking for help, tell the truth.

Not disclosing your full financial situation is akin to going to a doctor complaining of a belly ache but failing to tell her that you have just consumed 2 kilograms of chocolate. Her diagnosis will be off and it will take longer to treat you.

Cutting the wrong expenses:

When resolving to commit to long-term financial goals, it may mean that you need to cut expenses. The cuts need to come from luxuries, not necessities.   You need to sacrifice lifestyle in the short term in order to achieve long term peace of mind.

Not taking a helicopter view.

People often see frugality or paying off debt as a loss rather than a benefit. Don’t focus on what you will be losing focus on what you will achieve, the list is long. Get all of the above elements in place and you will find it easier to stick to your plan.

Not investing in risk products.

Debt stops you from being able to afford vital risk products like home and car insurance, life and disability cover, medical aids and retirement products. If you were not paying off last year’s sushi dinner at 25% interest you would be able to afford a comprehensive insurance and investment portfolio.

You can fib about your weight, your age and the size of the tiger fish you caught on the Kariba but when you lie about your financial situation, the only sucker is you.

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