There are broadly, two types of debt. You have the good debt which is broadly used for investing in yourself and in the future in the belief that it will prove beneficial in the long term for us and our families. The bad debts are the more frivolous debts which might be for buying a smart new car, a new tv or on holidays and vacations.

The good debt could be for learning a trade, investing in your business or borrowing a student loan to enable you to improve your education. Good debts offer the opportunity to have a better life in the future for you and your family.

The bad debts are money borrowed to treat yourself and enjoy life now but the cost is to be paid in the future. Buying a big tv on a loan now is all very nice for life today but you may still be paying for that tv long after the tv has gone to tv heaven and you will be needing to buy another tv to replace it.

Whichever type of debt you are considering you should always look at the costs and make sure you can afford the loan. You may feel happy to go without other things to invest in your future but starving yourself to get a new tv is not a sensible option.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

We live in a society where money is the oil that keeps everything flowing yet most of us have only a basic understanding of money. We understand the benefits that money can bring which is why we borrow money to achieve those aims but most of us pay little attention to the difficulties and problems that borrowing can bring until it hits us in the face.

The nation has been on a spending spree for the last decade, spending money we didn’t have in the belief that we were better off than we really were. We had good reason to think we could afford it. Why worry about the odd thousand pounds here or there when your house was going up in value by thousands each month.

Many people saw their increasing house price as money they could spend so they borrowed against their property to free up the cash. Unfortunately the increase in wealth was just an illusion and we are all being brought back to earth with a bump. Many people are discovering that their house which they thought was an investment has turned out to be a millstone around their necks.

We all got a bit carried away with this idea that house prices would just go on rising forever. It was clearly unsustainable but too many of the people giving advice had their own interests tied up in a continuing property boom so at best they were blinkered and could only see the positive side and at worst they were less than truthful or simply stupid.

So, we are where we are and no amount of tears will change the situation. We have to live with our debts and deal with them. Managing debt is essentially a simple process, though it gets more complicated the more debts you have but at it’s heart is the basic fact of money coming in and money going out.

You probably have a finite amount of money coming in to your household each month and you need to manage that money to make all your repayments, buy your food and pay your utility bills. You need to understand what your financial situation is and to do that, you need to analyse your income and expenditure.

Start keeping records of your spending on everything. Record every payment made for anything right down to that bag of crisps or bar of chocolate you were tempted by at the local store. It is only by having all your financial details laid out in front you that you will begin to get a true understanding of your financial situation and only by understanding your situation will you be able to start working to get yourself on a more secure financial footing.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

Many of us have spent our lives going to work each day to earn enough to pay the bills and borrowing from the banks to get those little extras like a house or a car. Yes, modern life has encouraged us to borrow a bit too much and many of us have built up large credit card debts and personal loans.

Generally speaking we have done so in what we thought was a realistic belief that we would be able to repay those debts and though we may have failed to give a great deal of thought to the future cost of those debts we certainly didn’t intend to dig ourselves into a financial hole.

We are human and we think emotionally. Very few of us work through a spreadsheet of income and expenses to establish exactly where all our money comes from or goes to, though maybe more of us should. We are not professional money managers. It’s a sideline for us, just another part of life and all it’s complications.

You would epect things to be very different in the financial industry where people have been paid huge amounts of money to know what is what, when it comes to money. Yet, every week we hear more tales of financial carelessness causing problems for many of the huge financial corporations and all this has led to governments around the world having to bail out companies, pump money into the system. Today, we are expecting the chancellor to offer us yet more borrowed money in a financial stimulus package which, it is hoped, will encourage us all to spend more.

If we all did our financial spreadsheets we would probably decide we should spend less, not more. The system that has driven business over the last few decades seems to be broken and all these measures seem to be just trying to prop up a broken system.

We are constantly told that the problems arose in the US and travelled around the globe but this is not the fault of a few poor people who thought they could improve their lives with these mortgages that they couldn’t afford. They didn’t have spreadsheets and they just did what financial advisers told them they could do.

Borrowed money was the problem, we are told. Poor people who were either stupid, careless or devious, but these people didn’t have spreadsheets. They did what they were told was the best thing for them. Invest in a house, secure your financial future. What they didn’t know was that they were mere pawns in a game being played by, supposedly, financial experts who did have spreadsheets and were supposed to understand what was going on.

News that the US Treasury is to inject billions of dollars into Citigroup to prevent it’s collapse may help it’s 200 million account holders but it does more to support the system that currently exists. How much longer can governments go on pumping yet more borrowed money in to save this slowly sinking, ship?

I discovered this article The End by Michael Lewis who previously wrote a book Liars Poker in 1989 about his experiences on Wall Street and how he thought it was doomed. It’s quite a long article but it makes for chilling reading. To think that these companies and these supposed financial experts were gambling with other people’s money to such an extent and with such little real understanding of what they were dealing with is staggering.

Some bankers have started to say sorry both here and in the USA. I guess that is something similar to someone saying sorry after they accidently shot someone when the gun they were playing with went off. If you play with dangerous weapons you have a responsibility to use them wisely. It’s a shame and a tragedy that the people playing with the financial markets didn’t seem to even realise what they were playing with and how serious it could all become.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)