Money Management - Debt is a Symptom: Day 1 - Establish your baselines

The Norm Curve - Used to categorize and predict your behaviour and habits

Where are you now?

In health, in order to progress to a diagnosis and treatment of any condition as part of gathering symptoms for analysis, you gather what is called baseline observations. At times these can be as simple as taking a blood pressure reading (BP), temperature, blood samples or noting measurable or visible clues to diagnosis. They are established from normative studies - ideal measurements or values in given circumstances. They are usually the 'average' measurement taken from a diverse set of people, situations or a collection.

In business, the term benchmarking is used, which identifies a set of statistics by which a performance outcome is measured. These can be used on individuals such as in appraisals, in teams for group outcomes or for organisational outcomes.


Why is this relevant to you and your debt?

Well, companies are using your behaviours and performance statistics (e.g. spending, frequency, financial ratios, age) to predict your likely money management habits in order to see how likely you are to buy or use their products and services. For example if you use loyalty cards in shops, then they are collecting data on the products you buy, your likey budget and the frequency of your purchases.

This also applies for debt. If you are using any form of credit of debt, the organisations collect information on your repayment habits and evaluate the risk and reward equation of lending to you. The risk to them, is that you may use their money and not repay it. The reward for them is the level of interest they can charge to you, before you pay off the capital (orginal amount of money you borrowed).

Flipping Your Financial Fortune in Your Favour

In order to flip the risk and reward equation in your favour, you need to get to grip with the figures which include the balances on your accounts, your income, your expenses, interest rates and credit scores. If you are not planning on using credit in the future, your credit score may not matter, but if in the future, you may need or want to move house, even as a means of downsizing to pay off debts, therefore you will need a good credit score to enable you to get access to better mortgage deals (if you need one).

So day one - includes getting to grips with the measurements. Gather your statements, contact all your service providers and write down the numbers.

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