Life and debt
DEBT PLAYS a pivotal role during the second stage of your financial life cycle. Depending on how you handle debt during this stage, you can either move smoothly on to the next stage or find that you are scrambling to survive financially, not quite making it comfortably into the next stage without significant delay.
The second stage of the financial life cycle is a period of transition where the young adult starts to earn a living. In the early stages of this transition, they may still get continued, even if reduced, financial support from parents or guardians. Some adults never quite get past this transition completely.
In adulthood, money is needed for separate housing, furniture, a vehicle and the other growing possessions. Some of the funds needed may have to be borrowed. Gradually, the young adult borrows more and more and so establishes a personal credit rating. This is the phase in the debt cycle when debt control can easily get out of hand.
Even with care, there comes a time in the life of most adults that the debt burden seems like a ball and chain around the neck. Just to meet the mortgage, the car payments and the installment payments on the credit cards seems to drink up all of the available cash. Then, there may be young children to support and to educate. The monthly pay cheque is spent well before one gets it.
This represents the aggressive phase of debt. It is almost as if the debt has a mind of its own and is intent on killing the ordinary joys of day-to-day living. The debt burden in one’s life is usually at its peak during this stage. There may be occasions when it feels as though the weight of the debt is overly burdensome.
Yet, with progress in life and careful planning, the next phase begins when one catches sight of the end of the tunnel – one sees the prospect of paying off the major portion of one’s debts and one can begin to plan for retirement with some of the excess cash.
Slowly but surely, with self-control and with the normal pay increases over the years, one can manage to put a strong bit in the mouth of the racehorse called debt. The pity is that the use of debt has a certain allure every step of the way when one is going through this stage. The acquisition of desirable material things and the enjoyment of life’s offerings can seem so affordable with just a bit more debt. It can be easy to get caught up in debt, never to recover.
Besides the management of cash during this stage of financial life, the next key indicator of financial success is the way one manages debt during this second phase of financial life. Further, one must accept that debt will play an important role in one’s financial development over one’s lifetime.
The cash earned is typically not enough; debt expands one’s financial capacity and development greatly during this stage. If that is so, one should specifically plan to make the best of the struggle with debt during this second stage of financial life.
Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.