We hear a lot of talk today about the US economy approaching the so-called “fiscal cliff.” What about your personal financial matters? Are you on the fiscal cliff as we inch into 2013? Canadians are awash in debt. On a monthly basis, we read about the rising debt to disposable income ratio, which now sits at around the precarious 164% level.

While the world and many at home praise our government for its brilliant fiscal management, few warn of unsustainable levels of personal debt. In fact, the head of our central bank, Mark Carney, has accepted a similar position at the prestigious Bank of England. Will his legacy here be that of the hero or that of the villain? Will history show that he kept interest rates low for too long, encouraging too many people to take on debt they can’t pay?

To his credit, he, our finance minister, and the prime minister have been warning Canadians about these dangerously high levels of personal debt. However, Carney could reduce the increase by raising interest rates. Sure, higher rates will cushion the current sluggish economic growth. Still, I think the short-term pain is better than the likely collapse in personal finances that could occur if debt stays at current levels or grows.

What can Canadians do to avoid their fiscal cliff? Let’s examine three vital steps.

1. Accept that you are dangerously leveraged.
2. Establish a mechanism to live with a decreasing debt
3. Develop a new vocabulary to guide their behavior.

Accept that you are dangerously leveraged

You can’t solve a problem unless you recognize it. Do you think you are carrying too many debts? Your banker might tell you no; however, only you can answer this. carry a helicopter view. What are your and your family’s emotional responses to your debt? You are worried? You can not sleep? If so, you have too much debt. Certainly look at the ratios, but this is the key barometer.

The emotional cost of debt is the first and most significant cost. If the debt is 10% of income and it is causing problems for you or at least one in your family, that is too much. Still, you must accept reality and decide to live with it, not take on more and start a debt free lifestyle.

If you are a Christian, give this emotional stress to Jesus (Matthew 11:28).

Establish a mechanism to live with decreasing debt

People are impatient. we live in a now society. Unfortunately, you were probably in debt for a long period of time and will likely get out after a long time. She accepts this fact and learns to live with it.

Develop a strategy for living in debt. See how you got there; draft principles to prevent recurrence; and then write a financial plan, alone or with help. The plan should concisely show how, by following its principles, you can be debt free at a specific time.

If you got into debt from impulse spending, you might develop the principle of never shopping without a list and a budget. Also, when you feel you need to spend, you may want to wait 24-48 hours, during which time you would talk to your spouse or accountability partner.

You’ll have to find what might work for you, decide if you need help, and try to get it.

Prepare a debt meter and post it on your refrigerator. On a monthly basis, as you pay off the debt, adjust the debt meter.

Develop a new vocabulary to guide their behavior.

This sounds easy, it’s simple, and when you get it, it will be your most effective debt control “tool.” What you believe will decide how you behave. If you think emergencies happen and cause you to spend erratically, it won’t change your behavior. However, if you believe that in addition to timing, most “budget emergencies” can and should be planned for by regularly setting aside funds to meet them, you will plan accordingly.

Your car will need repairs. You will need new tires. Your oven will turn off, and so on. The problem here is time. You don’t know when these potential budget busters will happen. Still, you know they will happen, so create a equity Funds, an emergency fund, an emergency fund, or some other means of saving for these predictable events. If you accept this fact about emergencies, and understand that to get there you must sacrifice today’s consumption, this is the beginning of your great victory over debt.

Another key vocabulary shift is accepting that you can’t eat money, you can only manage your behavior – shifting from money management to lifestyle management.

Summary

As you enter 2013, take a look at your finances. You will know if you are on the fiscal cliff. Rest assured, you don’t need more money to get through, first, you need to accept where you are. Next, set up a mechanism to live where you are while you pay off your debt. Then examine your vocabulary, your beliefs and adjust them to reality.

I pray that you move away from easy and seductive credit and begin to move away from debt.

(c) Copyright 2012, Michael A. Bell