Dealing with an addiction to bad financial habits requires the same approach as any other addiction

A number of years back, I was in the helpless position of watching a close friend destroy his life through addiction to alcohol, cocaine, and heroin.  Helpless, because whomever I turned to for help – church ministers, Life Line counsellors, and organisations – gave me essentially the same answer: unless the addict admits that he or she has a problem, there is nothing that one can do to help them.  There is a whole array of programmes available once the person has reached this point, but all require a measure of co-operation from the addict.

That point did not arrive for my friend.  He died of a heroin overdose at the age of 32.  Hardly a day goes by without me asking whether or not I could have done more than I did.

Poor spending habits can become as ingrained as any other addiction, and need to be dealt with similarly.

What does this have to do with money?  More importantly, what lessons can be taken from alcoholism and drug addiction and applied to your finances?

When it comes to drugs, nobody really goes out and consciously says, “I am going to take this drug so that I can become hooked and thereby destroy my life”.  Rather, drug addiction arises through trying to be “cool”, going through an experimentation phase, attempting to drown your sorrows, or by becoming addicted through long-term medical treatment.

Likewise, nobody consciously decides to blow an obscene amount of money (which, in many cases, is borrowed), so that they can deliberately land up in financial difficulty.

Rather, spending patterns start out of ignorance, become habits, and end up in a vicious cycle of scraping through from month to month, using Visa to pay off MasterCard.  This phenomenon occurs across the income scale – there are probably as many people earning top salaries, as there are in the lower income groups who are in severe financial difficulties.

Most people can drink alcohol in moderation, and never suffer any health problems.  In fact, there is growing evidence that a glass of wine with your evening meal can actually be beneficial.  Likewise, there is tremendous benefit from spoiling yourself on occasion with a restaurant meal, a CD, or a trip to the theatre.  However, excess drinking is a problem, as is excess spending.

Financial problems have the following similarities to alcohol or drug problems:

  • Financial problems are not brought out into the open.
    People (particularly men) are more likely to discuss problems relating to their sexual difficulties than their financial difficulties.  It is a very rare person that is prepared to admit that they have financial difficulties.  Discussing their problems with their creditors is regarded as a fate worse than death.

  • Until you admit that you have a problem, you cannot be helped.
    People with financial problems continue to spend on their credit cards.  They ignore bills.  Calls from creditors are never returned.

  • Financial problems will destroy you.
    Whilst I do not know of anyone who has died as a direct result of financial difficulties, your credit-worthiness, reputation, and quality of life will eventually be destroyed if the problem is not addressed.  Creditors want their money, and will attach most of your worldly goods in order to recover what is owed.

  • Most financial problems are self-inflicted.
    There are cases where a person becomes addicted to a drug that was prescribed by their doctor for genuine medical reasons, such as the long-term use of painkillers.  Likewise, severe financial hardship can be caused through retrenchment, or the sudden death of a breadwinner.  However, most financial problems are caused through lack of education coupled with the lack of planning and poor discipline.

Many people have seen organisations such as Alcoholics Anonymous portrayed in movies or on television.  The image is invariably of the support group meeting, where the first-timer stands up and says, “My name is Joe, and I am an alcoholic.”  These organisations will tell you that this statement is often the first step towards recovery.

Here, then, are some steps towards your recovery from financial difficulties:

  1. Admit that you have a problem.
    This one is easy to spot – if your expenses exceed your income each month, you have a problem.  If the slightest extraordinary expense sends you running to the nearest drug pusher (also known as a loan shark or your bank manager), you have a problem.  If you do not have a brass farthing put aside towards your retirement, you have a problem.

  2. Take stock. This means investing a solid weekend into sorting out your filing, making a list of what you owe (both the total amount outstanding, as well as the monthly instalment), establishing what your monthly expenses are, and listing all income sources.

  3. Check your attitude.
    Why do you spend in certain areas?  If you will excuse the pun, is it to keep up with the Jones’s?  If the people with whom you associate do so because of the clothes you wear, the car you drive, or the area in which you live, do you really need such people in your life?  Are you spending money on “comfort items” that you do not need and cannot afford?  If so, there is an underlying problem that needs to be addressed.  Or is it the “I want it now” syndrome?  A sign of maturity is delayed gratification – a characteristic that is unfortunately at odds with today’s marketing bombardment.

  4. Cut back.
    Most households have areas where money is wasted.  I drive my family berserk switching lights off behind them, and am a veritable pain in the rear end when it comes to telephone usage.  Am I a miser?  (The jury is still out on this one!).  Whatever names I may be called, I would rather take my son to a movie than give the money to Telkom and Eskom each month.

  5. Get help.
    Speak to someone who is financially literate.  They need not have strings of financial degrees behind their names.  A retired minister from our church lived a lifestyle of financial prudence, extolling the values of thrift and saving for a rainy day.  Although his retirement would not be called lavish, he is debt-free and has sufficient funds to not only clear the housekeeping, but also enjoy the odd outing, regular holidays – things we all would like in our “golden years”.  Such a person would also readily refer you to like-minded professionals when it comes to more complex matters such as investments, tax, and estate planning.

  6. Keep it simple.
    You can only improve your financial situation in two ways – spend less, and earn more.  Since salary-earners are at the mercy of their bosses when it comes to earning more, spending less is the only short-term solution.  When you do receive an increase, remember that earning more money without changing your spending habits is like pouring petrol onto a fire – an increase invariably means that your bank is willing to give you more credit, which will get you into an even deeper hole.

  7. “Don’t talk to me, talk to your creditors”.
    Contrary to popular belief, the bank does not want to repossess your car or your house.  However, ignoring the problem will not make it go away.  Talking to your creditors is key.  You need to approach them with a payment plan, which you must stick to.  Paying regularly, even if the amounts are small, shows good faith, and most creditors would be prepared to accommodate you in this situation.

  8. Get out of debt.
    As soon as you have dealt with your spending patterns, or your circumstances have improved (e.g. by finding a job, being promoted, etc.), attack your debt with a vengeance.  Start with your smallest debt first, and pay extra – even if it is only R20 per month.  Kill that one and move onto the next.  Obviously, if you were in arrears, your priorities would be determined by your arrangement with your creditors.  However, if you can settle your clothing account in three months instead of six, you will then be able to use that money to claw back the arrears on your bond.

  9. No addiction will simply go away by itself.
    This applies equally to alcohol, drugs, and bad spending habits.  However, like other addictions, financial mismanagement can be overcome.  You may need to spend some time in “financial rehabilitation”, but your financial future depends on it.