Choking on debt is usually depressing. But turning that around will always be an accomplishment to be proud of. Sheryl Sutherland offers some tips on how to do that, even if there are bumps along the way

By Sheryl Sutherland*

'Annual income twenty pounds, annual expenditure nineteen, nineteen six, result happiness. Annual income: twenty pounds, annual expenditure twenty pounds nought and six, result misery.’
~ Dickens’ Mr Macawber

Many of us are choking on rising mortgage rates, grocery prices, petrol prices – you name it it’s now eye wateringly expensive to live; here are some general ideas for coping with debt and spending, without losing your mind, your spouse, or your home. There is a teeny light at the end of the tunnel, rumour (always reliable) has it that US rates will drop in 2024, I am sure our socially responsible banks will follow suit smartly, so our rates will drop soon and we will only have to deal with other inflationary prices relating to the other necessities of life.

Incurring debt can apply at all income levels. Someone earning $200,000 can be as badly in debt as someone earning $50,000. Debt can make us feel vulnerable and uncomfortable, why not get rid of it? Easier said than done in these difficult times.

If we are in debt, we feel negative about ourselves so if you want to deal to it here are some pointers to begin to address debt:

First, importantly, acknowledge debt (and that means the whole amount). Realise that you are in charge, and you can control the situation. Try to be positive about your situation. You have family, friends, and the world around you to feel great about.

Think about your own strengths you will gain through clearing your debts by your own efforts. Think about the improvement in your self-esteem, your health (always affected by stress), and relationships.

List the concrete goals you wish to achieve and care passionately about them. Tell yourself you will achieve them. Be aware that despite your positive attitude you will face drawbacks, the current rise in mortgage rates for example, turn these problems into opportunities. Write down possible solutions – one will eventually present itself. If your problem is urgent, give yourself a timeframe in which to work. Take advice from someone who is not emotionally involved with you.

Now do something concrete. Take the list of goals you have formulated, make a plan to deal with each one, set a deadline, and take action. The two qualities you now need are persistence and flexibility – if your first solution to a problem doesn’t work, try another. Find out where your money goes in order to reorganise payments, use a notebook to record spending.

Now take one day at a time. Don’t be tempted to borrow to get out of debt, unless you can refinance at a lower rate, and don’t spend because you are depressed. Part of your positive attitude will stem from congratulating yourself on the debt you have reduced that day.

Remember, persistence, flexibility and positive thinking. Don’t forget to spoil yourself, treats can be free or very cheap. One treat per day will keep you motivated. Helping others can also make you feel motivated. 

Can you analyse why you spend? Is it to give you a ‘feel good’ rush? Do you then feel guilt and shame? Consider a money mentor if you are spiralling out of control. Give yourself a spending allowance – then stick to it. You will feel good and there is no guilt or shame. Money often feels too tight to mention. Think differently about money, aim to spend less than one hour a month on your finances. Whether you’re solo or in a relationship, set up a regular monthly meeting to review your key numbers.

There are four numbers that matter in your finances: your fixed costs (50 – 60 per cent of take home pay); savings (5 – 10 per cent); investments (5 – 10 per cent, and even higher is better), and guilt-free expenses (20 – 35 per cent). Hit these numbers and you’re in the right neighbourhood.

There’s a limit to how much you can cut, but no limit to how much you can earn. Manage your expenses, but don’t forget about the income side of your finances, which can involve negotiating your salary, starting a side business, or switching industries entirely. There’s no virtue in living a smaller life that you have to. The point of money is not to hoard it. The point is to use it to live a rich life.

Ask $30,000 questions, not $3 questions. Most people agonise over coffee, but the real $30,000 questions are areas like your investment fees (I’m looking at you property investors, real estate fees, lawyers, accountants, top ups from salary, property managers and that’s before we get to actual maintenance, insurance and reliance on tax deductibility to make a profit), asset allocation, negotiating your salary, and paying off your mortgage interest early.

A rich life is lived outside the spreadsheet. Get to know your key numbers, go live your rich life.

*Sheryl Sutherland is director of The Financial Strategies Group, and author of Girls Just Want to Have Fund$ – Every Women’s Guide to Financial Independence, Money, Money, Money Ain’t it Funny – How to Wire your Brain for Wealth, and co-author of Smart Money – How to structure your New Zealand business or investments and pay less tax. You can contact her here.