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PERSPECTIVES: Stop Hating Your Debt and Start Building Wealth
We are back to our series called PERSPECTIVES, with a focus on gathering real-life perspectives to help shed further realities on the subject of money.
This series is aimed at offering deep insight whilst also inspiring and encouraging our readers to get better with money and ultimately seek Financial Joy and Independence in their lives.
I'm excited to introduce you to our guest, Maria Nedeva, whom I met through the Personal Finance community.
Maria Nedeva is a Business School Professor and the creator of The Money Principle where she teaches people in financial trouble how to build sustainable wealth.
How do you feel about your debt?
If you tell me that you love your debt, I simply won’t believe you.
If you tell me that you don’t feel anything about it, I won’t believe you either.
Yes, most self-styled personal finance experts would tell you to keep your emotions and your money separate. I hope you don’t believe them.
I’ve met many money nerds and am yet to speak to one who lives by his/her teaching on emotions.
If you tell me that you hate your debt I’d believe you. This is what I would expect given the image of debt projected by the personal finance industry and media.
Debt, in my experience, always brings with it a whole host of emotions. When I made our debt situation known (on a public forum, writing under a pseudonym) there was much support.
There were also haters who thought that getting in debt is a sin with no possibility for redemption.
I was called irresponsible, dumb, a breaker of communities and society. (Okay, here I’m exaggerating but only slightly.)
It is not surprising that, at first, I hated our debt with almost religious fervour.
I hated it, I was afraid of it and I blamed myself for getting into this predicament.
You see, I understand. Roughly eight years ago, we were in £100,000 consumer debt which we paid off in three years.
Today, we have three times that in new, mainly liquid, investments. This is nearly half a million pounds net worth increase (without accounting for property and pensions)!
How we did this?
There is much written about ways to pay off debt and a lot of it is about technicalities and we did those.
We focused on increasing our positive monthly cash flow by increasing our income and controlling spending by eliminating waste.
In addition, we followed a simple strategy for paying off debt fast. We earned as much as we can, we spend as little as we can and put the difference against the debt.
More importantly, to make this dramatic change in our money situation possible I had to make two simple mental shifts. These are:
- Stop hating debt; and
- Focus on wealth building, not debt repayment.
Now let me tell you how this works so you can do it as well. Trust me, you won’t regret making these small mental shifts.
- How To Pay Off Debts Fast And Stay Debt Free Forever
- 7 Essential Habits For A Successful Debt Free Journey
How to stop hating debt
After much reading, experimenting, and intellectual meandering, the three ways to stop hating debt that I used were:
- Learning to keep emotions in check;
- Making debt a problem not a predicament; and
- Re-framing debt repayment as a path to increase my wealth.
Keep emotions in check
As I was saying, I don’t believe that people can keep emotions out of money. What can be done is to accept that you’d be emotional about your debt and concentrate your energy on learning to cope with emotions.
There are four techniques that helped me keep my emotions in check when we were paying off debt and you can try these as well:
1. Running (or other forms of strenuous exercise) because it is generally very good for minimising stress.
2. Auto-suggestion because it slowly works on changing deeply ingrained in your mind assumptions. This is a technique where you repeat a phrase regularly until it changes your perceptions. You don’t even wish to know how many times I had to repeat ‘we’ll be fine’ in the first couple of weeks of debt repayment.
3. (Re)framing your debt into a problem. You know that there is no problem without a solution, right? This is what framing your debt as a problem is about; and once you are aware of the solutions, debt becomes temporary. How to do this I’ll tell you in the next section.
4. Making paying off debt a pleasure, not a chore tingled with regret. To do that, I started referring to our debt as ‘negative wealth’.
Make debt a problem
Learning how to change debt to be a problem, not a predicament, is not technically difficult though it needs some work at the start.
You see, problems have solutions; predicaments don’t.
When you think:
- I have all this debt, my life is over.
- Life is so unfair to deal me so much debt.
- I’ll never crawl out from under this debt.
You have a predicament.
Debt becomes a problem when you start asking:
- How do I stretch my food budget?
- Or how do I make £100 more per month?
- Or even how can we have fun without paying a penny?
You’ll have to learn to do this every day; every hour of the day.
Debt is a problem when you ensure you have money to put against it, and you don’t stop until it is all gone.
Calling debt ‘negative wealth’
When we were paying off our debt I noticed something I didn’t like: whenever I thought about the debt I felt down.
Whenever I made a payment on the debt, I felt regret – if only we had no debt I could….
I don’t know about you, but I have problem persisting when there are pain and negativity involved. Most people do.
I started thinking about how to change this negativity. One day, I thought to myself:
“What is debt? It is the part of my wealth that has a minus sign in front. It is ‘negative wealth’.”
You won’t believe the difference this made. This was the cornerstone of shifting my attention from paying debt to building wealth.
Every time I made an additional payment on the debt my heart was singing with joy – this payment was increasing our wealth.
Try it. Feels awkward at first but once you get the hang of it you’d find yourself in a good emotional place.
Focus on wealth building, not debt
Most people who are in debt tend to focus entirely on paying it off.
In other words, paying off the debt is their final objective, their destination.
Once the debt is paid off, bad money habits creep in and people find themselves back in debt.
Yes, it is exactly like yo-yo dieting and I meet many people who manage their personal finances like that.
Problem is that, just like with yo-yo dieting, the second time around debt is worse.
Getting out of this ‘yo-yo’ situation demands the expansion of focus; e.g. shifting the focus from ‘paying off debt’ to ‘building wealth’.
This way, paying off your debt will stop being a destination and will become a stop on the way to wealth.
Recently, a friend of mine asked me what I would consider to be my biggest money success.
Guess what I said? Yes, my biggest success is that I didn’t stop when we paid off the debt but continued to build new investments.
There is a lot written about how to get out of debt. Most of it is great insight emphasising the technical aspects of paying off debt.
Here I draw attention to the mental side of paying off debt, more specifically, I introduce you to two mental shifts that underpin paying off debt by helping you change how you feel about it and by leading you to refocus on the much broader picture of building wealth.
Go on, try it. When you are finished paying off your debt and continue building new savings and investments we could meet for a beer.
- How To Pay Your Mortgage Off Early & Why You Should
- 5 Debt Realities And What To Do About Them
- Why You Should Keep Track Of Your Net Worth & How To Grow It
How do you feel about your debt? Positive? Negative? Or Indifferent?
Many thanks to Maria for guest posting on The Humble Penny. You can follow Maria’s work on Facebook and Twitter.
Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.
Re Maria Nedava’s blog
I have around £8000 of debt. I’m ambivalent about it.
If you wish I’m comfortable with the amount and the £220 pm it costs me to service it. I could repay it in 6 months if I chose.
However, to do so would mean I lose 6 months of investing and growth.
It’s easy to become a zealot over debt repayment and to discount a ‘comfortable’ level of debt.
If your goal is wealth creati, and your debt isn’t crippling, you should always invest first
The Humble Penny says
Good point about investing first if one’s debt isn’t crippling.
Remember too that paying off interest bearing debt is a form of investing with a guaranteed return.
You’re correct as usual Ken.
Each case is individual. If you’re paying 2% interest in debt but can get 8% investing, then it’s better to invest. In my mind at least 😀
This is where I am now. I’ve paid down my only debt (mortgage) to the point where I can fix it for ten years.
I’m now concentrating on increasing my investments. It feels weird not to be be overpaying on the mortgage but at 2.59% I’d be mad not to increase my isas and pensions instead
The Humble Penny says
You’re in a great spot! Win-win