When I decided to start my business in 1995, I visited the local Harvey Norman store to buy a computer and printer. The price tag was $3000 – three times the price of what you would pay today. The salesman recommended I get a two-year interest-free credit card to pay for the bulky items.
I didn't understand why the bank would give me a two-year interest-only credit card. I asked the salesman if there was a catch. He said, “There’s no catch if you pay the debt within the two years. But you're in trouble if you don't – the interest would be 20%.”
I knew I was going to pay it off in two years, so I said to myself, “Why not? I get to keep my money and I have two years to pay it off.” So I signed up.
A couple of days later, the salesman called me to say my application for credit had been rejected by the credit card company, despite receiving copies of my latest payslips and bank account balances. I had more than $3000 in the bank.
When I asked why I’d been rejected, the salesman said it was because I didn’t have a credit history. Back then, I didn't know what this meant. So the assistant accountant asked the “silly question” – what was a credit history? The salesman said this was a record of debts I had repaid responsibly after borrowing money from a bank or store. He added that if I wanted to build a credit history in order to help me buy a house or car or build a business in the future, I needed to start borrowing.
And, that my friends, is how you and I get hooked on debt! But getting “hooked on debt” might not be such a bad thing if you use your Money Intelligence and beat the banks at their game.
The key is to know the rules and exercise enough discipline to win the game. The banks know that most people will come back to them to borrow more money. People get married, have children, buy a home, get a family car, and build a business. Most of us need the banks to do these things, and the banks need us! They form a major part of building our civilisation.
However, since the late 1980s, I have seen my generation – Gen X – and the younger ones get hooked on credit-card debt on a massive scale. It's not uncommon for a client to walk in the door, needing financial advice on how to get rid of a $50,000 debt on various credit cards from different banks. Most are paying more than 15% interest. It's a vicious cycle because the interest rate is so high that most people are stuck paying off the interest only.
So how do you get ahead? How do you beat the banks at their game?
I have to be upfront. Beating the banks will take time! And before you beat them, you need to beat the part of you that got you into debt in the first place. You see, no one can beat you unless you let them beat you. You allow them to take little bites of you in the beginning while you're still functioning, then as time goes by big chunks get bitten off. You start to wonder, “Where did the years go and how did I get here?” Middle age hits and you have big responsibilities: a mortgage, a partner, children and school fees, annual holidays and a new car lease. Work gets harder as technology and globalisation impact your industry, and your debts snowball.
There is a way to win the game. In my book Money Intelligence®, I present the 18 values and 48 money mindset principles that form the basis of the Money Intelligence model I created so that the average person can learn to take control of her/his financial outcomes.
Here are 8 Money Intelligence —MQ Principles— I share in the book on how you can win the game and get yourself out of the consumption debt:
MQ Principle # 1: Begin with savings in mind®
MQ Principle # 2: Practice resourceful habits – manage your P&L
MQ Principle # 3: Challenge your money beliefs and habits
MQ Principle # 4: Take calculated risks – the devil is hiding in the detail
MQ Principle # 5: Don’t allow your emotions to blind your better judgement
MQ Principle # 6: Live by Pareto’s 80/20 rule
MQ Principle # 7: Patience is a virtue worth practising
MQ Principle # 8: Set your own standards and don’t mind thy neighbour
Over the next eight weeks, I will explain each of these strategies in detail. I will give you the tools to not only overcome your debt and beat the banks at their game, but to change your money mindset and increase your MQ so you don’t fall into debt again.
Stay tuned for next week’s post on Money Intelligence® MQ Principle # 1: “Begin with Savings in Mind®”
Susan Wahhab —CPA, SMSF Specialist, Entrepreneur, Working Mum, Small Business Supporter—is Australia’s leading Financial Strategist and Money Mentor. Susan is the founder and managing director of Accounting and Financial Services firm Winner Partnership Pty Ltd (www.winnerpartnership.com)
Susan is the author of the Transformational and Practical book Money Intelligence® - Anchored in Values. She believes that people can become financially liberated by developing a healthy relationship with money. Learn more about being money intelligent www.moneyintelligence.com.au