Debt is like fire August 1, 2008
Posted by BDO in Budgeting Concepts.Tags: beat, budget, Debt, finance, fire, grill, manage, money, plan, spending
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Debt is like fire. Consumers routinely play with this fire, hoping they can miraculously (and without training) become fire walkers. But debt, like fire, usually does not have a good outcome unless it is handled with three key elements: a proper initial plan, debt containment, and constant debt supervision. Let’s use the analogy of a “good” fire. Grilling, a great American pastime, also requires planning, containment, and supervision of the fire. With these three elements, debt can be managed.
Create a plan before agreeing to debt.
Creating a proper initial plan for debt ensures success while running the financial marathon. When you decide to grill, your thoughts are focused on using fire for grilling purposes. Responsible adults do not start fires without considering the purpose of the fire first. Similarly, you must develop an initial plan to repay debt (whether it be in the form of a loan, a credit card, or a mortgage) as quickly as possible before taking on that debt. This initial plan must include considerations for your monthly income, the length of the loan, and future income potential/security. Once you have developed your initial plan, you need to enact the second key element for debt control: containment.
Ensure debt is contained.
To properly prepare for and overcome debt, you need to ensure proper containment. When grilling, you make sure the fire stays within the grill. A fire that spreads is dangerous! Debt is no different. Containment measures must be developed to prevent excess debt from accumulating. The single greatest thing you can do for yourself is to live within your means. Spend less than you earn. Stay within the budget you designed during your planning phase. Save what you don’t spend or apply it to debt that you have so it will be paid off more quickly. Make sure that each expense or purchase “counts” for something; beware of impulse buys.
Constantly supervise your debt situation.
Proper supervision of debt is the final key to ensuring success on the financial marathon. The grill must be constantly attended to make sure the food is cooked properly and that the fire does not do anything unexpected. Supervision of debt is just like supervision of fire. Watching it and manipulating it as needed helps you reap the desired result: to pay off debt more quickly. By “interacting with” and maintaining your “debt watch,” you will be sure to pay all your bills on time, avoid undesirable fees, and minimize the length of time you have the debt. All of this ensures that your initial plan is working and allows you to develop “course corrections” if/when new circumstances arise.
Discussion Questions:
- Did you create an initial plan before you decided to take on debt?
- What measures do you use to contain debt from growing?
- Who is in charge of supervising your “beating debt plan” is being executed as smoothly and efficiently as possible?
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“Only you can prevent wild fires.” – Smokey Bear
Photo by: tommaync
“Withhold not good from them to whom it is due, when it is in the power of Thine hand to do it.” Proverbs 3:27 KJV
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A Kid's Guide to Managing Money (Ready-Set-Grow Series)
This is a good analogy for debt.
It leaves me with the feeling that you’re saying “debt for anything is OK, you must just use it wisely”.
I’m not sure if this is what you mean, but if so I don’t really agree. I think you should avoid debt wherever possible, and if you make debt, make only “good debt” ( http://liberta.co.za/blog/is-there-such-a-thing-as-good-debt/ ).
Debt for luxuries, consumables and even day-to-day living really just aren’t necessary, and should be avoided.
Let me apologize if there is any confusion. If one person understands the blog that way, than a thousand will. My intent is to not leave people with the impression that “responsible adults should only play with fire [debt]“.
Debt should be avoided at all costs!
However, if debt must be taken on for medical reasons, education loans, or mortgages, than the above steps should be taken to ensure the proper handling of that forced debt.
The intent of the above post is to educate people on the proper handling of debt, if debt is the only and last resort.
Just like your post talks about good debt and bad debt.
Bad debt in all circumstances should be avoided.
I love this analogy – it’s excellent. Too many people see credit cards as a convenience to get what they want now and don’t realize how quickly it can become a forest fire sized debt!
Yay! Interesting…
You are right, everyone, this is a great analogy between fire and debt. Both have to be constantly watched or it may get out of control. A gust of wind (temptation) could fuel the flames (unnecessary desires/wants) and cause the fire (debt) to consume/cook the food and destroy it (budget). I liken the embers as being the constant mortgage payment, it glows underneath, it’s an asset w/a debt, but eventually it has to go too. A pail of water to help put out the fire can be like the disciplined drops of money we add to the debt to get it extinquished. Now I am really stretching this analogy !!! LOL