Recently, I was flipping through the channels and came across this show ‘Til Debt Do Us Part’ on CNBC. The title obviously caught my attention and I watched a couple episodes of the 30 minute show.
The basic premise is it profiles a person or couple who overspends and ends up in a lot of debt. The ‘coach’ comes in helps them clean up their act. And of course, what self-respecting reality show wouldn’t have challenges? These help the person or couples visualize their financial problems.
In the show, there a couple of messages that stands out for me:
1. You don’t need to overspend to be in debt. Being out of work, unreimbursed medical expenses, disability, death – all of these things happen to real people and can cause financial problems. These are referred to by the Federal Reserve as ‘income shocks’.
2. You can’t manage what you don’t measure. One of the first things the coach does is have the couple put together a budget and track their spending. It’s so easy to spend an extra $5 here, or $10 there. It doesn’t feel like any big deal, but at the end of the month, those small amounts really add up. Many people are surprised by this little activity.
3. Compound interest can either work for you or against you. I’m sure you’ve seen those lovely charts of money growing in an account over time. Well, the power of compounding can just as easily hold you back. Interest on credit cards works against you like trying to swim against the tide.
4. It’s not just about the money. What are people celebrating when they pay off a debt or mortgage? It isn’t just that they made their last payment. They are rejoicing over the sense of accomplishment, having less stress, freeing up money so they can enjoy other things, etc. Strong emotions are tied to money – even when things are going well.
5. Having an outsider help is invaluable. All of the people profiled on the show would not have likely had the success if it wasn’t for an outsider to educate and hold them accountable. Of course, the people had to have wanted it first. Hey, even the greatest athletes in the world still have coaches.
6. There is no magic pill. You’ll notice that the recommendations on the show may take little time to implement, but have to be used over time. Often, people think there’s a magic formula or some investing strategy (Madoff anyone?) that will just make all of the problems go away. Sorry to burst your bubble…
Take a look at the show. I’m sure you’ll see that there are many average people out there who could use this kind of help.
Answer to last week’s trivia question: A – 0 days.
This week’s trivia question: Since the creation of the current system of taxation in 1913, what has been the highest income tax rate and when did it occur? For reference, in 2009, the highest tax (bracket) rate is 35%.
