Taking Control of Your Personal Debt


We've all made financial commitments like mortgages, rent payments, college tuition, and utility bills. When you combine those commitments, you end up with the foundation for a budget. But what happens when those commitments exceed your income?

After we become accustomed to a certain lifestyle, it can be difficult to make adjustments when the amount of money coming in decreases. But unlike the federal government, real people don't have the option to take a vote and raise their personal debt ceiling. In the real world, increasing your personal debt ceiling only works for so long. At that point, there are only two options:

  1. Earn more.

  2. Spend less.

Simple math, tough choices.

Yet again we have another example of how painful it can be when the cold, hard facts of arithmetic smash against the complex, emotional issues of money. The math is simple: If you spend more than you earn, at some point things will have to change.

But once we move beyond the math, things start to get fuzzy fast. Most of us can relate to that sick feeling of comparing what we owe to the amount of money sitting in the bank and knowing it isn't enough, or the pain of telling children that we simply can't afford to do something that was incredibly important to them, or the awkward discussion with a spouse about which extra expense we have to cut to make ends meet. These conversations aren't easy, but they have to happen if we want things to change. At some point we can't continue to kick the can down the road.

To add to the frustration, these decisions are intensely personal. We all want easy answers from some personal finance guru who will tell us what to do. We want a prescription, but this discussion doesn't work that way.

Sure, there are books that will provide a framework, and learning from others (including Elmo) that have been through this can be helpful. But in the end, your situation is absolutely unique. It will require you to come up with a plan that works for you. Often what one family defines as a need another will view as a luxury, and neither one of them is wrong. In the end, they will both need to satisfy the equation on the napkin: Their income must be greater than or equal to their expenses.

At some point in your life, you've done the math and realized that your financial commitments were out of whack with your income. How did you fix your problem? If you have children, how are you helping them understand the need for financial balance?

A version of this post appeared previously at The New York Times.

Carl Richards is a financial planner and the director of investor education for the BAM ALLIANCE, a community of more than 130 independent wealth management firms throughout the United States. Visit Behavior Gap for more of Carl's sketches and writings.

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