I was taking a bath when this idea came to me.
A lot of times it is hard to explain to people who are in denial state that all one has to do to get out of debt is to have a complete lifestyle change and not just a makeover.
So while taking a bath using a big pail and a dipper I noticed that when I left the faucet running the water spilled and continually spilled until I closed the faucet. Then while scrubbing my body it came to me. I now have a new analogy about debt and how get out of it. First of all let’s have some few definitions so that we can easily understand my analogy.
Terms use for easy understanding.
Water = debt
Boat = your financial condition
Holes = your lifestyle or spending or loans or forms of indebtedness
Now let’s get on to it.
source: http://tim-byrd.com
Imagine yourself in the middle of the sea. Yes the sea is water thus by that I mean in the middle of debt. Debt could always be either good or bad for you. There are basically two kinds of debt: good and bad debt. The difference between this two is that good debt is a borrowed money that generates money by leveraging such borrowed money. A lot of people confuse this simple truth and often times brand a bad debt as good debt. For example a credit card company offering zero percent interest on gadget purchases. Unless such gadget generate money on top of what you have borrowed I guess such is a bad debt. But if such purchases was for a set of PC to be used in a computer shop or to be use in your printing or VA(Virtual Assistant) gigs then I guess it should be classified as good debt.
Let’s go back to our analogy.
Now if you’re in the middle of the sea alone you could be drowning now so lets put you in a boat.The boat represents how sound are your finances. If your boat is in good shape and is sea worthy then I guess no matter how big the waves are you are confident you won’t sink. But what if your boat has holes? Yes holes are your worst nightmare if you are in a boat in the middle of the sea. Holes could be big or small. Big holes are definitely the scariest becomes you will surely sink right there but don’t undermine small holes. Small holes in the boat will put in water in the boat and you won’t be able to know it until the boat starts to sink and you scramble for survival.
Also having a small hole as compared to having a big one might be better but what if you have small holes everywhere? That could be more disastrous than a big hole.
Now lets translate our scenario into a more understandable words.
The boat is your financial status or condition. It defines how you handle money and how prepared you are on your financial needs. When you are good in handling your money you can easily survive any big financial emergencies in your life. On the other hand if you have a poor financial status you might end up having holes which lead you to loans, or borrowings in order to survive. These holes are your spending habits. When you start spending money in the wrong way you will end up letting water into your boat through these holes.
As mentioned a big indebtedness will surely sink your boat. If you are unprepared and emergencies come racing you will surely have no other alternative than to make huge loans to cover such emergencies. It will be very difficult for you to handle such loan specially when the water that comes into your boat is beyond your control no matter what you do. In no time you will surely sink.
Now how about small holes. This could be your credit card debts, small borrowings from your friend or co-worker, and others. It could be small and manageable but what if you mishandled it? This small debt may go out of hand and sooner you will be buried in debt and end up sinking but this time slowly. This could still be remedied but you got to have faster way to get the water out of the boat to prevent it from sinking. Not paying attention to such small debts could be the very reason of your downfall and how much more if there are lots of this small holes and you will be crazy trying to cover all up in order not to sink.
Now how can you prevent yourself from drowning with your boat?
The fastest way is to cover the whole and stop water from coming in meaning you got to make drastic change in your lifestyle and spending right away. Now lots of people have this problem: they can’t let go of their old spend trip lifestyle that is why they end up buried in debt. People can’t let go of their weekly bar get together, their after-work snacking at a fancy food shop, or their vices that keeps them spending. They would even blurt out to you that it is the source of their happiness that is why they just cant let go. They would rather sink than live.
For those with small holes one has to start stopping water from coming in starting with the holes that are becoming big. The more holes that get covered the longer you can stay afloat because even if you are able to cover up the holes water is already in the boat. You got to start taking out the water.
At times people stay comfortable having debt. They say it is light or it is manageable thus after stopping new debts from coming they stay calm and do small payments to their debt. You see even if your boat has no holes it is now loaded with water which adds weight to your boat making it vulnerable to waves that might overturn you. Maybe it is stable but again there are things that we call unexpected emergencies. It is better to be ready for those than sorry. You got to start taking out the water in bigger volume. You got to use a pail or bucket to take out the water from your boat rather than using your cupped hand to scoop out water.
Now it will worse if you have lots of small holes because even if they are just small holes they are putting in a great amount of water just like a big hole. And besides that you don’t know which hole to attend to first. Remember you only have four limbs to cover them if here is so much then you are doomed as well.
So how will you get out of debt or better prevent getting buried into debt?
As for the one hit with a big hole it is unfortunate that he will sink unless someone will save you. In the real world the best defense is for you to declare bankruptcy. It will take time to recover and lots of guts to face the world again but if you are determined you will come back.
As for those with small holes cover them as soon as possible and take our the water out of the boat. List down your debts and arrange them by the one with burdensome or onerous interest. The faster you pay off debts with higher debts the faster you will be back into good financial shape. At the same time avoid new debts. Learn to see if such debt will put in money in your pocket, if it doesn’t don’t get it.
If you have so many debts and already confuse the best approach is to face it one at a time. You shouldn’t end up making debt to pay another debt. Again list down your debts and arrange them by burden. Try to talk to the bank, institution, or person whom you borrowed the money and ask consideration. Make your very best to pay them in order to gain their trust and to establish that you are not running away.
With all of these the best solution is still not making a bad debt. So always think many times before deciding to buy something and charge it to your card or borrow money.
About the blogger
Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Learn more about Louis and his financial freedom advocacy here.
very nice article louis..
i think you’re good at expressing the philosophical side of investing and handling money
keep it up!