Being in debt causes us to become paralyzed with uncertainty and that leads to inaction. I want to talk about why if you wait too long to take action it can be a very expensive mistake.
And while I did previously write Get Out of Debt Fast, But Don’t Run, you should not just stand still as well.
When people find themselves building debt it is either caused by a reduction in income or an increase in expenses. The same basic factors apply to what I’m about to share with you but my example below is just about a loss of income.
My theory of dissaving is a fundamental reality when people run into trouble.
Theory of Dissaving
Dissaving is just a fancy word for negative savings or losing money. It occurs when expenses exceed income.
Because people become paralyzed in times of financial trouble they fail to recognize the period of dissaving and rather than deal with it they help to offset it by draining 401(k) accounts or saving accounts.
The dissaving becomes masked by this infusion of money people actually can’t afford to waste. And if the money drawn upon to mask the dissaving runs out before the underlying cause of the dissavings is repaired, the person will be in worse financial shape further down the road.
In this example you can see there has been a reduction in income and as long as expenses remain higher than income a period of dissavings will occur. This dissaving period can be thought of a financial hole that gets deeper and deeper as time passes.
If 401(k) accounts are being raided to help make ends meet during this period of dissavings, all that is happening is the dissavings hole is being filed in by taking assets from a pile of money causing dissavings in that pile of money. You are just shifting assets around, not manufacturing assets.
And as I mentioned before, this also applies to periods in which income remains steady but expenses increase. In that case the dissaving takes place above the income line as obligations exceed income. But that would require another of my lousy drawings to demonstrate.
This example serves to demonstrate the benefit of taking action early to intervene in the underlying issue and eliminate dissaving. As you can see, in this example bankruptcy was used to terminate some ongoing expenses and bring expenses below income.
By tackling the dissaving we are no longer having to use other assets to fill the hole.
In fact what happens by tackling the dissaving and rapidly bringing expenses below income we create the opportunity for saving rapidly.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
I am not suggesting that bankruptcy is the only way to deal with dissavings but I am suggesting that the goal should be to tackle and end the dissaving period quickly so as to resume the ability to save again.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Originally published March 29, 2013
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