Different points of view when in debt

Recently I met a young couple who are thinking they have no option except to go bankrupt. They had gone to a bank about three years ago to enquire about the best way to save for their own home. The bank “sold” them a large loan based on the fact the husband’s annual salary often included up to an extra $20,000 per annum overtime and the wife had a part time job. The bank had looked at a few pay slips and advised them that they could buy now and include other debts they had into their mortgage as well. The couple was excited to buy their own home because at the time they had no problems meeting the outgoings. However, input from another person such as a budget advisor may have helped them look at the dangers and pitfalls of what they were about to commit to. A third person may have asked questions such as how will you make these repayments if your overtime is cut or how will you manage if you have children in the future or why have you got debt that needs to be added into your mortgage?

With the current economic climate, the husband’s hours have now been cut back due to lack of work. It looks like they are going to have to sell their home for considerably less than the amount owing and are financially “up the creek with out a paddle”.

There is a common saying “there are two sides to every story.” During my counselling training and being a budget advisor I have found this to be true.

When making decisions about your finances or purchasing decisions it is best to look at things from three points of view at least. Draw three columns on a piece of paper and head them: My view, (view 1) The Salespersons view (view 2), An outsiders view (view 3). Then put yourself in each of those person’s shoes and write down how they would look at it.

View 1 – The way you look at it. This view will be influenced by many different things such as past experiences, upbringing and what is important to you.

View 2 – The view of the person wanting to sell you the item. This view will be influenced by things such as the commission he or she may earn. Ask yourself what would they gain if I made this purchase?

View 3 - When considering an outsiders view, ask yourself – is this person a sensible money manager and consider if they would gain anything personally from the decision you are about to make. Are they going to give you an unbiased opinion?

Often that third person’s view can help you step back and let some of the emotion out of the equation. When making major financial decisions, be prepared to get expert and unbiased help with the decision making. It can save costly mistakes!!

Silbo Systems, conduct money lessons for parents together with their children in small groups. For information contact us.