Situational Changes (The Good, The Bad & The Neutral)
Bad habits, bad luck, wrong decisions, and many other reasons land us in a state of distress. These incidents normally lead us to what we believed as “end of the world” situations. Yet they are in fact just a situational change that we could not adapt.
Windfalls, jackpots, winning in lotteries or a sudden jump in your commissions — these are also situational change. However, we do not realise they are the same as the negative side of situational change.
Realistically, like the ancient Chinese philosophy concept of Yin Yang, the opposite forces are seen as interconnected and counterbalancing.
– You strike lottery and go gambling, lose the money and start borrowing to recoup your losses.
– You got lucky and closed a big deal with huge commission, you splurge the surplus and start using your credit facilities to sustain the image you created.
– You have a steady income job and get a promotion, the following year you decided to get married and have children. You start to tap into your credit facilities to pay the bills.
Many of us would get caught up with one or some of such similar situations, it seems unavoidable in the modern world. Credit facilities are easily available and opportunities to lead a better live are always desirable. Yet, we always overlook our own capabilities and abilities to plan ahead, thus not creating a sustainable lifestyle. In reference to the Yin Yang concept, you are in an imbalance situation where the situation leans towards the bad side.
The Habit Formation
In the book Transform Your Habit (James, C.), the author mentioned a simple 3-step pattern that every habit follows. The “3 R’s of Habit Change” encompasses a behavioural loop that leads to becoming a habit.
The 3 R’s of Habit Change are:
1. Reminder (the trigger that initiates the behaviour)
2. Routine (the behaviour itself; the action you take)
3. Reward (the benefit you gain from doing the behaviour)
If we expand the thoughts and apply this 3 Rs to a negative situation, the reward is translated as a punishment, a penalty or reparation (which gives us the 3 R’s of Bad Habits).
The 3 R’s of Bad Habits in Debt Related Issues
The most common mistake that people make is setting their sights on an event, a transformation, an overnight success they achieved as a trigger (Reminder) for them to reward themselves.
These actions create a subconscious habit (Routine) that ironically, in most instances, lead us to a despair state (Reparation) and only realised the situation when it is too late. Let us look at some common situations and identify the 3 R’s of bad habits.
Shopping Spree
You start using your credit facilities to pay for a branded bag because you just got a promotion. You also bought two dresses as you think they complement your new bag. A week later, you saw a nice pair of heels that you think will further complement your new purchases. On your next pay day, you decided to buy one more set of dress and heels and swiped your credit card. Eventually, this became a monthly routine. You only realised you had too many clothes and heels when you needed money for something else but could not afford. To make things worse, you had to borrow money from other sources to pay for it.
1. Reminder — The desire to buy heels and clothes
2. Routine — The justification to buy them on every pay day
3. Reparation — The need to repay to the creditors
Business Ventures
You identified a business opportunity and think this could be the turning point for your future. You invested your savings and after some months of profits, the business started going downhill. You think it is a good idea to further invest and re-invent the business model, so you went to take up a business loan. The bank only approved 50% of the targeted loan amount and you dig into your savings to make up the other 50%. The business went further downhill and you strongly believe it was due to the economical situation and has nothing to do with your products. You borrowed some more money from other sources to invest in your business. The creditors started asking you for payments and you realised you could not afford to continue your business and to meet your daily expenses.
1. Reminder — The strong believe that your business acumen will make profit
2. Routine — You continued borrowing to sustain the business expenses
3. Reparation — The need to repay to the creditors
Family Commitment
You decide to start a family with your childhood girlfriend. You want to give her the best wedding she could experience. You want to buy a cosy apartment and have a decent renovation. All these require money and you only just started a new job. Although the salary is good, it is not enough to pay off all the items for the upcoming wedding plans. You rely on the available credit facilities and you borrow money from your parents to pay. A year later, your wife tells you she is pregnant. You have problems paying the pregnancy check-ups and the hospital bills, you utilise your credit facilities to pay these bills. Along the years, you need to spend on your child’s education, medical fees, family vacation and the need to juggle with your household expenses. You realised you could not manage the cash flow and borrow money from other sources to sustain the family needs.
1. Reminder — You want to provide for your family although you know you could not afford
2. Routine — You use the credit facilities to manage the cash flow
3. Reparation — The need to repay to the creditors
These examples reflect the imbalance of the opposite forces and the person would eventually end up in a debt related situation. Situational change is volatile and most of the time, difficult to adapt.
The WWH Process to Forming New Habits
Like I mentioned earlier that situational change is volatile and difficult to adapt, most of us would either continue to borrow to stay afloat or bury our heads in the sand, hoping things will just disappear magically. Doing this not only going to hurt you, it will affect the people around you as well. The correct decision you need to take, and probably the only choice, is to change.
Change is a big and general word. The tough part is how to get things started and stick to the plan until we see results (negative or positive).
The thought process is simple, we apply the “Why > What > How (WWH)” process rules.
1. Why am I in this situation?
2. What did I do that landed me in this situation?
3. How should I be getting out of this situation?
The Why
The first step is simple enough, you need to consciously understand why you are in the current “in debt” situation. If you are in denial of the fact, you will never be able to identify the real cause and have a real action plan to deal with the problem.
Asking the “Why” is important, asking “Why am I in this situation?” helps you identify the problem. Identifying the cause of problem or chain of problems helps you narrow down the root cause of the situation you are in.
The What
By consciously identifying the actual problems at the “Why” stage, the root cause of the problem will surface. At this stage, you must identify the “What”. Finding the “What” by asking “What did I do that landed me in this situation?” amplifies the cause of problem and helps you define a solution to each problem you face.
The How
Now that you have identified the root causes, it is time to act on it!
Many debtors eventually fail to take any actions to improve their debt situation due to various excuses they could possibly think of. It will be entirely up to your will power to make it or break it at this stage.
Start a commitment and priority list. In many instances, immediate family members are always the top priority. You do not want the debt collectors to harass your family members and you do not want your family members to be affected by drastic changes due to bankruptcy or legal actions taken by the creditors.
By listing out the priority and commitment, next is to cross out those that came in from the third line onwards. Simply put it this way, you should only focus on top two priorities and stay committed to them until you achieve a debt free status. To certain extent, you may even need to restrict to one priority due to your payment capacity.
The basic rule of thumb to follow in reaching the debt free goal is
“Yourself/Family first > Pay off creditors timely and systematically > Achieve debt free goal”.
Everything else are just noises and temptations.